Ad Hoc Management for Each Ally

BY STANDARDIZING PROCEDURES, A DEDICATED COMPANY FUNCTION IMPROVES GOVERNANCE OF NEW ALLIANCES BUT MAKES RELATIONSHIPS WITH ESTABLISHED PARTNERS MORE DIFFICULT

by Dovev Lavie, Bocconi Department of Management and Technology


A dedicated alliance function (DAF) is an organizational unit directly responsible for developing and disseminating alliance management practices and overseeing the company’s alliances. Companies in many industries establish DAFs, hoping to create more value in their alliance relations. However, some studies reveal that a DAF can limit flexibility and may not necessarily contribute to the success of alliances. In a recent study, I analyzed more than 15,000 alliances, and found that by enhancing standardization, formalization, and centralization of alliance management practices, a DAF creates value with new partners, but at the same time, destroys value with repeated partners.
 
The DAF enables companies to learn how to manage alliances, but learning depends also on the company’s experience with partners. The DAF can leverage industry best practices when codifying and integrating know-how gained in the company’s various alliances. It transforms diverse inputs into standard practices that can be consistently applied with new partners, and improve the predictability of outcomes. The DAF also facilitates formalization by codifying tacit know-how, and introducing manuals, checklists, and review forms, such as those used for assessing prospective partners. This formalization is most valuable when forming alliances with many new partners. Finally, by appointing a corporate executive who oversees alliances, the DAF can effectively monitor alliances and intervene in their operations. This is especially useful when collaborating with multiple new partners, because centralization supports effective application of coherent alliance management practices. The diverse experiences gained with various partners increase the potential value that the DAF can create for the company.
 
Paradoxically, the same approach that enables the DAF to create value with “strangers” (new partners) destroys value in the company’s alliances with “old buddies” (repeated partners). Specifically, standardization of company-specific practices may become suboptimal when applied in repeated alliances with a partner whose characteristics are unique. In these alliances, the company and its partner need to develop mutually agreeable partner-specific routines, as IBM’s vice president noted: “It took us nine months to resolve the management styles between us and Siemens. You have to talk about it, work through it and come to agreement on how you are going to do the leadership.” A DAF that instead promotes company-specific routines may impose rigidity and restrict adaptation to the unique needs of such a partner. Efficiency comes at the expense of flexibility and adaptability in this case. Moreover, the DAF’s formality counters the informal nature of repeated alliances with the same partner, in which mutual trust, social embeddedness, and commitment evolve naturally. A partner with whom the company has built trust and formed interpersonal ties may be discontented by formal practices. This creates tension that undermines trust and collaboration. Finally, the centralization imposed by the DAF can generate tension between the corporate office and alliance managers. As an alliance manager noted: “You cannot do that from the corporate office. I am here every day. I have lunch with these people, I go out with these people. You can gain a lot of access just by walking down the hall.” Hence, the centralized practices may be disconnected from the alliance’s actual needs.
 
In sum, the DAF enhances standardization, formalization, and centralization of alliance management practices, which can undermine relational mechanisms that evolve with partner-specific experience. By introducing company-specific practices that conflict with partner-specific routines that were jointly developed with some partners, the DAF may destroy value in repeated alliances with these partners. Companies that form alliances with a diverse set of partners can benefit from a DAF, but those that repeatedly ally with a select group of partners may not gain from the DAF, and should restrict its interventions, while the company nurtures extended relations with those partners.