Strategic Alliances: Building Strong Ones and Making Them Last
Mary Alice Ball
University of Arizona
Tucson, Arizona
Shirley C. Payne
University of Virginia
Charlottesville, Virginia
The number of strategic alliances in the corporate world has surged in the 1990s, and similar relationships are now being formed between corporations and higher education institutions. The rate of alliance failure in the private sector is high, however, and there is much that can be leveraged from these experiences. This presentation covers the results of recent research on critical success factors in strategic alliances, including the importance of communication, participation, and trust in building successful partnerships. This information will set the stage for a follow-on discussion of a number of case studies, particularly a far-reaching strategic alliance formed in early 1998 between the University of Virginia and IBM.
Strategic Alliances: Building Strong Ones and Making Them Last
Introduction
Strategic alliances are gaining prominence on college and university campuses as a way of leveraging limited resources. There are a number of sessions at this year's conference that relate in some way to implementing these partnerships. This paper focuses on building strong strategic alliances and making them last.
Our program moves from the abstract to specific with the intention of giving you a fuller and more meaningful picture of strategic alliances. Initially we summarize some research that may help in managing these relationships. Then we discuss an alliance between IBM and the University of Virginia. We make no pretense of knowing everything there is to know about strategic alliances. We believe that one of the most important aspects of attending conferences is the opportunity to network with colleagues. For those reasons, at the end of our session we hope to summarize the survey information you submitted as you entered the room. We do this to encourage discussion and also possibly to begin the establishment of a collegial network of individuals involved with strategic alliances. To that end, if you have not yet filled out the form we distributed, please do so now and pass it forward. You may attach your business card if you would like to be included in any future networking efforts.
Definition of Strategic Alliance
Before I continue, we thought it would be helpful to discuss what a strategic alliance is. Although "strategic alliance" has become an increasingly popular term, it has no standard definition, perhaps because the concept is still developing. For our purposes today, we refer to a report by the Conference Board which gives the following three defining characteristics. Strategic alliances: 1) are strategic not tactical in intent; 2) focus on long-range goals and major economic benefits; and 3) "feature tight linkages among partners, vested interests in the allies' future, support at the highest levels of each organization, and emphasis on cooperation and collaboration" (Strategic Alliances, 1996, p. 6).
A great deal of literature exists regarding strategic alliances, most of it dealing with partnerships between businesses sharing the same profit motive. Researchers generally agree that only about forty percent of those alliances succeed. If we apply that data to partnerships between businesses and universities that have different motivations and cultures, the success rate may be even more discouraging.
Our intention today is to help you avoid being a statistic. There is no recipe for success and each of you has different circumstances and concerns, but we believe that we can teach you some strategies that can help increase your likelihood of creating and maintaining a successful alliance. We have included a few references at the end of our handouts for those of you who are interested in reading further on this topic.
Strategies for Avoiding Potential Problems
Partnerships are not a panacea for coping with limited resources and rapidly evolving technology. They require a tremendous amount of commitment and energy, as with any relationship. Robert Spekman, a management expert at the University of Virginia, writes of four steps to avoiding potential problems: strategic development, partner assessment, contract negotiations, and control/implementation. Let me go into a little more detail on these four points.
Before entering into any alliance, it is essential that your organization and institution have a clear sense of strategic directions and priorities and is able to articulate it to others. These goals should be the driving force behind an alliance, providing the motivation for future actions.
Once you understand what it is you hope to achieve it should be fairly easy to establish a list of likely partners who can help you get there. At this point you will need to assess the corporations on this list in terms of strengths and weaknesses, and have a clear sense of the value that they can add to your organization. Do they share the same strategic goals? What are their values and cultures? What is your past work history together and how much experience do they have with partnerships? Do you respect them? What are expectations in terms of time and deliverables? All of these elements form the foundation of the alliance relationship.
We will discuss contract negotiations in more depth later. At this point let me emphasize how critical an understanding of those earlier strategic goals and priorities are when you are negotiating an agreement. You and your potential partner need to reach a consensus on how you will measure success and understand the responsibilities and rights that will help you in achieving it.
Equally important is an understanding of the value your organization brings to the relationship, the flip side of what I just mentioned in partner assessment. Institutions of higher education offer unique benefits to corporations in the form of access to their faculty, students, and research facilities and infrastructure. Academic players may sometimes underestimate the worth of their institution to the corporate partner. The result may be a loss of power and an imbalance during negotiations that negatively impacts the university. Know your strengths and maximize them to improve your bargaining position.
Once you move into the actual implementation of an alliance, it is imperative that you have the structure and processes in place to move things forward. The clearer these elements are between partners the greater the chances of success. By structure and processes I am referring to the alliance manager, steering and working committees, work assignments and accountabilities, as well as formal and informal communication channels and interfaces. The object here is to increase stability and clarify expectations as early as possible in order to reduce the risk of failure later.
Integrating Organizations for Success
Rosabeth Moss Kanter (Harvard Business Review, July-August 1994) defines five levels of integration that lead to success: strategic, tactical, operational, interpersonal, and cultural. It is not sufficient for organizations participating in an alliance to work with one another on one or more of these levels. If they want to achieve success, they improve their chances by integrating their two organizations on all of these levels.
Strategic integration takes place at the highest executive levels and deals with organizational goals and objectives. Tactical integration "brings middle managers or professionals together to develop plans for specific projects". Operational integration "provides ways for people carrying out the day-to-day work to have timely access to the information, resources, or people they need to accomplish their tasks". Interpersonal integration provides opportunities for relationships to develop across organizational boundaries. The final level, cultural integration, "requires people involved in the relationship to have the communication skills and cultural awareness to bridge their differences".
Ownership of the Alliance
A lot of research points to the importance of a champion or sponsor, but the presence of one individual cannot inevitably lead to alliance success. Writers like Peter Senge, Arie De Geus and Meg Wheatley stress the power of participation and inclusion. For an alliance to succeed, we need to have ownership at all levels. I am aware of one alliance that failed, in part, because line employees feared that their jobs would be outsourced. Depending upon the point of view, either they undermined the project or management did by neglecting to address employee fears. The end result is the same - the alliance failed because all participants did not buy in to it.
Role of the Alliance Manager
I mentioned the alliance manager briefly before and I want to again discuss the role of this individual. Research repeatedly indicates how critical this position is to success in the exceedingly complex and politically delicate process of effective alliance management. Trust is paramount to interactions between alliance partners and that trust resides in the individuals involved. Participants in an alliance need to be as stable as possible, and I am speaking in terms of job tenure not mental condition here. It is difficult to maintain trust in this type of relationship if the cast of characters is constantly changing. Stability of personnel is as important to an alliance as access to and allocation of sufficient resources.
Having given this overview of current research on strategic alliances, we will now review an example of an alliance between a higher education institution and a major corporation, specifically the Unversity of Virginia (UVa) and IBM.
The UVa and IBM Alliance
First, we will cover some background information on the alliance. The relationship between UVa and IBM is long and deep. Not only has IBM been a generous corporate supporter of UVa, but the company has also been an essential collaborator with UVa on projects that use leading-edge technology to advance teaching, research, and health care. One example: IBM helped the university establish an Institute for Advanced Technology in the Humanities, which is helping to change the way in which faculty in the humanities interact with their colleagues, students, and their research materials. Another example: IBM helped establish an Institute for Microelectronics that serves to increase multidisciplinary microelectronics research and education initiatives and to foster collaborative activities with industry.
In late 1996 IBM approached the university about the possibility of formalizing and amplifying their relationship through the formation of an alliance. In February of this year, after an intensive assessment period, UVa and IBM announced a unique partnership. While IBM had previously formed alliances with other institutions, this alliance was the first one IBM had with a public institution and the first that focused resources in such a concentrated way on advancing scholarly research. In recent months IBM has entered into similar partnerships with several other public institutions.
Motivations for Partnering
Earlier we noted the importance of partner assessment in creating a successful partnership. A major part of the assessment process is understanding the motivations of each side in entering into the relationship. The UniveristyUniversity of Virginia had to consider the benefits such an alliance would bring to the institution.
Why was the university motivated to establish an alliance with IBM? The alliance seemed to provide UVa with a more formal structure in which it could develop collaborative relationships with IBM researchers, take advantage of opportunities for joint development and testing of new technological innovations in teaching and research, and share investment support for these initiatives. UVa believed this formal structure would serve to consolidate individual projects that had taken place with IBM in the past and, thereby, better leverage our assets to satisfy institution-wide objectives. It was the hope as well that the alliance would give the university a higher customer status within IBM that would have a positive effect on pricing, delivery, and ongoing service for leading edge technology acquiredtechnology acquired through IBM.
The general benefits that IBM indicated it sought in an alliance with UVa are as follows. The corporation was seeking more effective ways to develop and apply leading-edge technology solutions in the education industry through such mechanisms as joint research projects with UVa faculty and students and use of the university community as a test bed for new education-related products. It also was hoping to develop new methods for improving IBM�s present workforce (through such activities as holding employee seminars conducted by UVa faculty) and IBM�s future pool of prospective employees (through support of UVa internships and co-op programs). Certainly another reason was that IBM believed that the alliance offered the potential to increase its market share by promoting the greater use of technology in instructional and research environments and by showcasing its products in a community of students who would become future leaders in businesses in many industries.
The company was particularly interested in UVa because of its overall standing among large, public R1 universities, the strength of its business schools from which IBM recruited heavily, the success of past collaborative projects, and UVa�s commitment to innovative use of technology in the teaching, research, and health care.
Initiating the Alliance
Next, we will speak about the methodology used for forming the alliance. While potential motivators were fairly easy for both parties to identify, testing their strength and importance within each organization was an arduous process. UVa and IBM knew they liked each other, but both needed a lengthy courting period to identify at a more detailed level their mutual interests and potential for a lasting relationship. In other words, their first few dates had gone well and it was now time to meet the family.
A small core evaluation team of IBM and UVa representatives was formed to identify areas of possible connection. This core team was aided by an advisory group of UVa faculty representatives from all schools. After a preliminary assessment, the team documented four areas in which both parties had strong interests. Four task forces of operational level people from IBM and UVa were then organized to explore these areas in greater detail, and findings were reported back to the core team. A final report outlining potential synergies was then prepared for executives in both organizations. Based upon this report, the executives decided there were sufficient complementary interests to move forward with the alliance. A public signing ceremony and celebration were held on February 17th of this year. Since that time UVa and IBM have been formulating business plans for each project and putting those plans in motion.
Alliance Organization
The UVa-IBM Alliance is project-based, and many projects will be in operation at the same time. To provide the needed direction for the overall alliance and oversight of individual projects, an Alliance Council was established and is made up of senior executives from both organizations. A retired executive from IBM, who was instrumental in generating support within IBM for this alliance, was placed back on IBM’s payroll to coordinate day to day activities within IBM, and a person in UVa’s central IT organization does the same for activities within UVa. They are supported in this work by a working committee consisting of the Director for Advanced Technology in UVa’s IT organization, the Director for Corporate and Foundations Relations in UVa’s Development Office, and IBM’s local account executive. Together we make up the Alliance Committee. For each project, co-managers from both organizations are responsible for project planning and successful execution.
Learning Points
The last area we would like to address deals with seven different lessons learned in the process of creating and maintaining the UVa alliance with IBM. The first learning point regards leveraging an institution's strategic assets to attract prospective partner interest. While, in this case, it was IBM who approached UVa concerning a possible alliance, the alliance would not have been formed if the institution had not invested time in identifying for IBM the strategic assets UVa could bring to bear in the relationship.
Institutions of all types can be successful in pursuing alliances, if they fully appreciate what their assets are and can frame them in a way that makes sense to private industry. Corporations care about increasing their share of existing markets, opening up new markets, accessing fresh ideas and challenging test environments for creating and enhancing new products and services, and improving the quality of the current and future workforce. Higher education can contribute to all of these needs.
The second learning point may seem obvious, but is still important enough to be stated. We must recognize the difference between philanthropy and partnerships. To be success in creating alliances with corporations, institutions must understand that these associations are based upon shared visions and shared risks, not on philanthropic interests. While UVa’s early relationship with IBM was a typical donor/recipient one in which UVa gratefully accepted donations and used them as it felt appropriate, the alliance is a true partnership where commitments are made on both sides and both expect to gain. In UVa’s current dealings with IBM, it tries hard to eliminate the phrase "give us" from our vocabulary. Instead, there is talk about "investments", a word that clearly conveys that "returns" are part of the equation.
Our third learning point is that public institutions face special challenges in pursuing business alliances. These institutions are often governed by complex procurement laws designed to ensure all businesses have equal opportunity to vie for products and services being purchased. Corporations that are used to making deals on the golf course have difficulty understanding that alliances with public institutions cannot have a loosening effect on these procurement laws. When exploring alliance possibilities with a firm, it is critical that this issue is discussed early on so that expectations are appropriately set.
These institutions are also under the constant critical scrutiny of state legislators and the public, and the announcement of a major alliance will not go unnoticed. Before entering into an alliance, public institutions should ensure the benefits can be easily understood at the state level. One strategy is for public institutions to relate their alliances, if appropriate, to any state economic development initiatives that are fostering closer ties with private industry.
As the alliance progressed, UVa became more aware of the roles various individuals within the institution played in the process. Experts say that top executive level involvement in the formation and management of alliances is essential, and the University of Virginia found that to be the case. If executives take ownership of the alliance, the necessary resources to sustain it will be more readily available. Also, the alliance is more likely to survive bumps in the road, if those with the broadest appreciation of the strategic significance of the alliance are involved in problem resolution.
At UVa the central IT organization led the effort to explore connection points between IBM and the university during formation of the alliance and is responsible for ongoing operational issues related to the alliance. Since this organization is responsible for setting the strategic technology direction for the university, it is not only appropriate, but also critical that it actively participateparticipates in this effort. Given this role, central IT is able to ensure all collaboration ideas support the university’s strategic direction and are defined in terms to which a technology-base company, like IBM, can relate.
As noted earlier, UVa faculty served as advisors throughout the alliance assessment process, and faculty representation on the Alliance Council ensures ongoing involvement. There are also representatives from IBM Research on the Council. Because the alliance exists primarily around teaching and research initiatives, these individuals are key to project development and implementation. They provide the tactical and operational integration discussed earlier.
The UVa Development Office also played an important role in formation of the alliance. In a large institution it is far too easy for the right hand not to know what the left hand is doing. We believe that working closely with the Development Office when exploring partnership opportunities with corporations is critical to ensure that contacts with the companies are well coordinated. UVa found it also important to engage the Purchasing Office early on in a discussion with IBM about procurement laws, for reasons mentioned earlier.
The fifth of our seven learning points relates to finalizing the deal, specifically, having a contract versus having a document of understanding. Experts say that many alliances never get off the ground because they become mired in lengthy, combative contract negotiations. Lawyers are paid to ensure there is no inexact language in a contract, and there are elements of an alliance relationship that are not concrete and easily defined. If an institution has an alliance in which parties are constantly referencing a contract, the alliance is probably not a healthy one.
UVa and IBM developed a "Document of Understanding" to govern the soft issues related to the alliance. This document outlined the scope of the alliance, its expected benefits, the general commitments each party was making to the other, how the alliance would be managed, and how problems would be resolved. Although UVa and IBM executives did sign the document, it is not a legally binding contract. In fact, there is a statement in it that says, "UVa and IBM assume no liabilities in connection with the execution or performance of this Document of Understanding, except to the extent set forth in separately documented contracts executed in furtherance of the Alliance." By using this approach, the partners avoided an exhaustive negotiation and contract writing process to get the alliance in operation.
It is important to communicate the existence of the alliance within both organizations. It is the people at the operational level who will make alliance initiatives happen, and they will need to understand the big picture of the alliance and why it is important to the institution for it to succeed. UVa has used the local media, letters to faculty and department heads, and an alliance web site to publicize the alliance with IBM.
Finally, it is important to truly manage the alliance to ensure momentum is maintained and commitments are met. Entering into an alliance means business is no longer "as usual." Alliances are very dynamic in nature, just like marriages, and over a lifetime can be affected by many internal and external factors. Keeping an alliance healthy through all of its stages requires proactive attention and dedication. Open communication channels are critical. In fact, in a published survey of 455 CEO’s, poor communication is the second most common reason cited for alliance failures (Alliance Analyst, 1992). Being overly optimistic about what the alliance will accomplish, a possible outcome of poor communication, was the number one reason for failure. Partners should engage people in the governance and day to day management of the alliance who are concerned for the welfare of the alliance itself, not focused on individual partner interests, and who are adept at conflict resolution. Holding regular reviews of the health of the alliance will help identify any problem issues and can also serve to renew commitments to the alliance.
Conclusion
Given current conditions in higher education and academic computing, strategic alliances appear destined to continue proliferating. They provide an opportunity for colleges and universities to leverage limited resources so they can develop and acquire new technology. Strategic alliances are extremely complex relationships and present a challenge to those of us involved in their management, however with careful planning and a lot of hard work we can achieve successful outcomes.
As we end the formal part of our presentation, we would like to encourage you to submit the survey you received at the beginning of the session if you have not done so already. We are going to summarize who is involved in what types of alliances and then begin the question and answer period. Thank you.
De Geus, Arie, The Living Company. Boston: Harvard Business School Press, 1997.
Kanter, Rosabeth Moss, "Collaborative Advantage: The Art of Alliances", Harvard Business Review, July-August 1994.
Senge, Peter M., The Fifth Discipline: The Art and Practice of the Learning Organization. Currency Doubleday, 1994.
Spekman, Robert E., Lynn A. Isabella, Thomas C. MacAvoy and Theodore Forbes III, "Creating Strategic Alliances which Endure", Long Range Planning, Vol. 29, No. 3, 1996.
Strategic Alliances: Gaining a Competitive Advantage. New York: The Conference Board, 1996.
Wheatley, Margaret, J. and Myron Kellner-Rogers, "Bringing Life to Organizational Change ", to be published in the Journal of Strategic Performance Management, 1998.