Thursday, January 2, 2014

Systematic guide to the appliance of alliances

FT.com
January 1, 2014 6:01 pm


Network Advantage: How to unlock value from your alliances and partnerships, by Henrich Greve, Tim Rowley and Andrew Shipilov (Jossey Bass £24.99/$50)
All companies sit somewhere in a supply chain. Most have competitors and collaborators. And yet we look at businesses very often in isolation, as if their results depend solely on their own separate efforts.
The principal achievement of Network Advantage is to draw attention to the centrality of these broader networks to the success or failure of businesses. With detailed and thoroughly research­ed case studies, the authors – Henrich Greve and Andrew Shipilov of Insead and Tim Rowley of the Rotman School of Management in Toronto – show how to take a more systematic ap­proach to the portfolio of networks and alliances in which businesses find themselves.
They define alliances as any “enduring and formalised collaborative relationships between two firms that involve significant exchange of information and resources”. This includes strategic alliances, joint ventures and partnerships. It also includes “any enduring buyer-supplier, joint manufacturing, R&D and licensing agreements”. All in all, a pretty exhaustive list. It also makes for a lot of intricate spider diagrams.
An alliance network offers three main advantages or characteristics, the authors say: information, co-operation and power. Just as Londinium (London) flourished under Roman rule at the centre of a network of roads and satellite towns, so powerful companies succeed in large part because of the constellation of players that surrounds them. After studying successfully networked businesses, the authors have come up with the inevit­able tool kits and analytical frameworks to help inform the way business leaders navigate their way through their own networks and relationships.
One of the mistakes businesses make, the authors argue, is to think only in terms of one alliance at a time, and not see the whole network that surrounds them. When businesses develop partnerships they tend to spend a lot of time considering how complementary potential partners are and not enough on how compatible they might be.
And sometimes they just have the wrong approach altogether. Consider Sony and Samsung. The Japanese company is famously siloed, with impermeable barriers between business divisions. At Samsung, information flows more freely. This immediately makes the Korean business more likely to benefit from the many partnerships it has formed. It is more open to new ideas.
While Sony has focused on content alliances, Samsung has formed more partnerships with hardware businesses. More­over, as the authors ex­plain, the few hardware partners that Sony has are with “higher-status” and include companies such as Hitachi, Sharp and Toshiba. As a result, these partners dep­end less on Sony than Sony dep­ends on them.
By contrast, Samsung’s “hub and spoke” model with more equal-status partners gives it greater bargaining power and access to new ideas. In a dynamic market, this approach to alliances has delivered greater value, faster.
The authors have plenty more advice and analysis of what works: try to be the star at the centre of your own alliance network, they say: “Don’t let others create an alliance portfolio for you.” And when establishing a new partnership, do not bring in the lawyers too soon, the authors advise, as they undermine goodwill.
They also argue that fruitful partnerships can be formed with competitors, or with partners’ competitors, echoing the old axiom: “Keep your friends close, but your enemies closer.”
The writer is a visiting professor at Cass Business School

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