The Impact of Cultural Factors in Strategic Alliance Success

Research conducted by Alliance Best Practice Q4 2012 – Q1 2013 for a global Pharmaceutical Company

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What is Alliance Best Practice (ABP)?

ABP is a research consultancy specialising in business to business alliances

Alliance Best Practice

Alliance best practices are the identified practices that research has shown lead to optimal alliance results

ABP is a group of over 20 international alliance experts able to cover the world and work in multiple languages

ABP is dedicated to: discovering, developing and disseminating best practices for its clients

It does this through the ABP Database (ABPDBTM)

Purpose and Conduct of Benchmark

ABC Ltd wished to understand the impact that cultural factors (both personal and organisational) have on strategic alliance relationships.

Specifically it (ABC) was looking to discover whether there was any correlation between high Cultural Critical Success Factors (CSFs) and overall alliance performance.

Alliance Best Practice Ltd (ABP) captured data from 93 alliance related executives; 41 people in ABC and 52 from partners.

The benchmark shows a significant correlation between high cultural scores and alliance performance.

Partners benchmarked were: PPD, Quintiles, Cognizant, Covance, ICON, and RPS.

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83.50% correlation between Cultural CSFs and alliance performance

Cultural Scores v Alliance Performance

Partner A Partner B Partner C Partner D Partner E Partner F0

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ABCPartnerPerformance

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Cultural CSF scores are an accurate predictor of alliance success

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Commercial Technical Strategic Cultural Operational

Co1 Business Value Proposition (BVP)

Co2 Due Diligence

Co3 Optimum Legal / Business Structure

Co4 Alliance Audit

Co5 Key metrics

Co6 Alliance reward system

Co7 Commercial cost

Co8 Commercial benefit

Co9 Process for negotiation

Co10 Expected Cost value ratio

T11 Valuation of assets

T12 Partner company market position

T13 Host company market position

T14 Market fit of proposed solution

T15 Product fit with partners offerings

T16 Identified mutual needs in the relationship

T17 Process for team problem solving

T18 Shared Control

T19 Partner accountability

S20 Shared objectives

S21 Relationship Scope

S22 Tactical and strategic risk

S23 Risk sharing

S24 Exit strategies

S25 Senior executive support

S26 B2B Strategic alignment

S27 Fit with strategic business path

S28 Other relationships with same partner

S29 Common strategic ground rules

S30 Common vision

Cu31 Business to business trust

Cu32 Collaborative corporate mindset

Cu33 Collaboration skills

Cu34 Dedicated alliance manager

Cu35 Alliance centre of excellence

Cu36 Decision making process

Cu37 Other cultural issues

Cu38 B2B Cultural Alignment

O39 Alliance process

O40 Speed of progress

O41 Revenue flow

O42 Business plan

O43 Communication

O44 Health check

O45 Alliance charter

O46 Change mgt.

O47 Operational metrics

O48 Operational alignment

O49 Exponential breakthroughs

O50 Internal alignment

O51 Project plan

O52 Issue escalation

Common Success Factors : Best Practices

There are currently 52 CSFs in 5 categories

Background

Critical Success Factors fall into 5 separate categories or dimensions.- Commercial – Co1 – Co10,- Technical T11 –T19,- Strategic S20 – S30- Cultural Cu 31 – Cu 39- Operational O40 – O52

This summary report focuses on one of the five dimensions – the Cultural Dimension.

Normally scores would be captured from both / all parties to the relationship to be able to compare results and identify areas of misalignment.

White space on a graph shows opportunity for development.

Understanding of misalignment of scores is a good starting point for relationship development.

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The Questions asked

CSF Question

Cu31What is the degree of trust in the relationship and how is this evidenced? (Please place score in Score Box and Evidence in Comments box.

Cu32 What is the level of maturity of alliance thinking in your organisation?

Cu33What degree of collaboration skills exist in this relationship on both sides and how have these skills been applied in your organisation? (Please place score in Score box and Evidence in Comments box).

Cu34Is there a dedicated relationship manager role identified to work on this alliance from both sides?

Cu35Is there a dedicated alliance department in your organisation to whom you can turn for help in this and other alliances?

Cu36How long is the decision making process in your partner’s organisation and how does this compare with decision making in your organisation? (Please place score in Score box and comparison comments in the Comments box).

Cu37 Are there any other cultural issues which ‘get in the way’ of business as usual?

Cu38What degree of Business to Business cultural alignment exists and what measures were used to ascertain this? (Please score in Score box and evidence in the Comments box).

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Responses were received from; 41 people in ABC and 52 from partners

ABC and Partner Cultural Alignment Overall

Page 8 BIC = A leading Pharma + CRO alliance

ABC

Alignment / Misalignment Areas

Factor ABC Partners Dif

Dedicated Resource 51 77 -26

Cultural Alignment 47 59 -11

Decision Making 48 55 -7

Alliance Maturity 60 66 -6

B2B Trust 58 62 -4

Partnering Skills 60 60 0

Centre of Excellence 68 66 2

Cultural Issues 63 57 7

Totals 57 63 -6

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Strengths / Weaknesses Areas

Type ABC Partners Comb

Centre of Excellence 68 66 67

Dedicated Resource 51 77 64

Alliance Maturity 60 66 63

B2B Trust 58 62 60

Cultural Issues 63 57 60

Partnering Skills 60 60 60

Cultural Alignment 47 59 53

Decision Making 48 55 52

Totals 57 63 60

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Partner Scores (Range)Relative Scores

A B C D E F G H I J K L M N O P Q R S T0

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Ptrs

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Cu31 Business to business trust

One of the most hotly debated aspects of strategic alliances. Needs to be business to business to be replicable rather than personally based (although often grows out of personal chemistry between partners).

Trust is a high impacter but is the result of a number of low impacters like; communication, information sharing, quality delivery, etc.

The incidence of business to business trust is far from common and no organisations identified in the database have a formal or credible business to business trust building model. This is due in no small part to the fact that the essence of organisational trust is misunderstood. See Trust / Competency Model

Paradoxically the impact that trust can have on relationships was almost universally identified as a critical success factor (94%) with many individuals able to cite quite clearly the commercial value of developing trust.

There has been an increasing degree of attention paid to this important area in the recent literature on alliance management (see particularly - Getting the measure of culture: from values to business performance by Prof Fons Trompenaars, PhD and Prof. Peter Williams, PhD and also Strategic Alliances between American and German companies : A cultural perspective by Khaled Abdou and finally ‘Managing Cultural Differences in Alliances’ by Pablo C. Biggs ).

The degree to which each organisation trust each other to deliver on its commitments.

Cu32 Collaborative corporate mindset

Many individual alliance managers cited this aspect as being the most difficult to deal with. Quotations such as the one below from a senior executive at Atos Origin were typical;

“We don’t do alliances very well, this is due in no small part to our historical growth, if we see an organisation that we would like to work with we don’t ally with them we buy them!”

Organisations that exhibited an immature or nascent organisational collaborative mindset tended to fall into the Stage I – Opportunistic category.

This means that they would pursue collaborations only in so far as they helped them to secure particular opportunities which were too large or too complex for them to win alone.

When that particular opportunity was secured they would then pursue another one, but there was no co-ordination of alliance activities other than those necessary to ‘win deals’.

In comparison those organisations that had reached Stage III – Endemic saw partnering not as a separate function but rather as ‘the way we do things around here’.

Such organisations regarded partnering as the core of their business and took great pains to ensure that partnering ethics and behaviours were practised throughout their organisations (e.g. Starbucks, Eli Lilly, Dow Corning, Siebel, etc).

The degree to which both organisations understand and practice partnering as an organisational competence.

Cu33 Collaboration skills

Very few organisations in the database had a coherent and integrated structure for collaboration skills development although many had individual training courses for aspects of the collaboration skill set (e.g. negotiation, inter personal skills, 360O review, project management, influencing skills, mediation, Etc.).

This is in many respects surprising given that there is a clear and strong causal link between the collaboration skills of key stakeholders and the success of collaborative relationships.

It appears that the reason might be that no association or trade body has sufficiently articulated a comprehensive framework of skills to describe the competencies of professional collaboration.

However, evidence suggests that such initiatives are now gaining ground. E.g. the ASAP Certification programme and the underpinning competencies framework. See Alliance Competency Framework.

The degree to which the individuals in both / all parties to the alliance have been trained to use a set of defined collaboration skills.

Cu34 Dedicated alliance manager

This factor is very often a defining one in the understanding of a strategic alliance. If the role exists then it is a strategic relationship if it does not then it is not.

The actual title can be many and varied; relationship manager, account manager, sales manager, key account manager, etc.

In many respects this is the simplest and easiest best practice factor to track. There is empirical evidence that when dedicated resource is allocated to a strategic relationship that

relationship improves by between 50% and 80% defined in the success terms of the individual relationship (e.g. more products sold, greater influence with introducers, quicker time to market, better profit margin, greater gross sales, higher revenue, etc.).

Given this fact it is surprising that so many organisations continue to expect individual managers to run multiple alliances.

The reason appears to be a damaging catch 22 situation. When a manager asks to be allocated full time to a relationship the common answer from executive management appears to be ‘When you can generate x amount of increased revenue I will allow you to go full time on the relationship’.

However, the problem is that without being full time the individual manager will never have the time available to produce x revenue, let alone develop a coherent long term growth plan for the relationship.

“I spend all my time running from one of my three so called strategic alliances to the next desperately fire fighting operational issues which arise and then I get criticised by my manager because I haven’t developed a coherent strategy for each!”

The existence of an individual dedicated to the day to day management of a strategic alliance.

Cu35 Alliance centre of excellence

Best practice examples include both back office and front office functions.

There was overwhelming evidence from the database that when organisations start to share alliance knowledge amongst practitioners performance goes up (Incidence 46% Performance improvement 87% increase on average).

These centres were by no means all physical entities, some were ‘virtual’ groups of multiple disciplines. Yet further not all were formally established some were clearly operationally started as a common observation of need;

“We started a regular teleconference call once a month to share experiences on our alliances. To be honest at first it was just a chance to share frustrations but pretty soon people began to share experiences or tips and tricks that had worked well for them that others could use. We started to share documents and templates and it really helped with our day to day jobs!”

There was a common misconception in Hi Tech alliances that the technical centres of excellence that were formed to test technical solutions was the same as alliance centres of excellence this was clearly erroneous although there were aspects of technical collaboration that shred common best practices with alliances e.g. communication models, operating protocols, budgetary sign off procedures, etc.].

The existence of an actual or virtual group of people tasked with developing, coaching, and implementing alliance and partnering standards.

Cu36 Decision making process

Disparate rates of decision making speed can be the most frustrating incidence of cultural misalignment.

Most commonly shows up where there is a large size disparity in companies.

For example, generally in a large multinational organisation, a significant decision needs to be vetted and validated by a number of management levels; whereas in a small organisation the same decision can be made quickly by a handful of senior executives sitting together or communicating remotely via telephone.

The problem is not so much that both organisations take different timeframes to make decisions; it is that both sides misunderstand the nature of the other organisation.

In the large organisation (not unreasonably) managers have been told to generate a traceable audit trail of authorisation thoroughly through multiple levels of senior executives; whereas in the smaller, more agile company, risk-taking and entrepreneurship is generally encouraged.

The manner in which this factor affects relationships is in the misconception of either side to the pace and depth of consensus needed to affect a successful decision. (e.g. Accenture / BT and Delta / Air France)

The process, speed and quality of decision making in both / all partner organisations

Cu37 Other cultural issues

In every strategic alliance relationship examined there exists some specific aspect of both organisation’s culture which give problems with the relationship.

Sometimes this can be the nature of communication, in others it can be an organisational reflection of arrogance or aggression; yet again it can be the attitude of organisations to escalating problems (in some organisations this seems perfectly reasonable, whilst in others it is seen as a fast track to proving that you can’t do your job and leads directly to an early exit from the organisation);

Whatever the particular instance there is a highly repeating occurrence in the database of specific cultural issues providing specific problems (over 86%).

The existence of any other cultural aspects of your partner’s organisation that ‘gets in the way of doing business’

Cu38 Business to business cultural alignment

In those organisations that recognise organisational culture as an in-house enabler or barrier to progress with partnership; many of them have developed their own language to describe their own cultural norms.

They use this language as a framework to identify to potential partners the culture to which that partner will be aligning and they actively encourage the partner to consider their own organisation’s culture along similar lines.

There is good evidence that such an active and early cultural alignment helps minimise the delays, misconceptions, and damaging perceptions commonly found in the cultural dimension.

In those organisations that do not already have a cultural alignment language or framework many are now actively turning to external advisers to help them with the situation (e.g. SAP and Siemens and Air France / Delta).

See Identity Compass

The ability of each organisation to an alliance relationship to understand the business culture of the other and align their own business culture to it for best effect.

Further Details

For further details please contact;

Mike Nevin

Managing Partner

Alliance Best Practice Ltd

Web: www.alliancebestpractice.com

Office: +44 (0)1675 442490

Mobile: +44 (0)7766 752350

E Mail: mike.nevin@alliancebestpractice.com

OPTIONAL FURTHER SLIDES

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Partner Range

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VST Methodology Analysis (Example)

Stage CSF Score Attention Impact

Vision

Common Vision 50 Y Long

Formal Business Plan 50 Y Short

Alliance Process 75 Y Medium

MOUP 0 Y Short

Skills

Collaboration Skills 50 Y Medium

Decision Making Process 48 Y Medium

Communication 23 Y Long

Collaborative negotiation 23 Y Medium

Trust

Trust 20 Y Long

Cultural alignment 83 Y Medium

Operational Metrics 50 Y Short

Operational Alignment 50 Y Short

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ABC Range

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Suggested Next Steps

ABP would suggest the following immediate next steps:- Ratify the scores with a range of key stakeholders from the partner organisation

(increase the data collection points).- If the same score patterns persist then take immediate action on the RED areas:

communication, collaborative negotiation and trust- Keep a watching brief on the AMBER areas: Decision Making Process and track

impact.- Celebrate the relationship strengths GREEN areas: Cultural alignment.

- Further information: white papers, training courses, templates and research reports exist in the ABP database to guide members in the best practices in each of these areas.

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Partner ‘Intimacy’ Spectrum

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sact

ional

Commodity Price Interchangeable

Product Highly specified

deliverables Buy from and sell to

Shared risks & investment

Deeply integrated Mutually

interdependent Breakthrough

market value

Some customization Flexibility/levels of

service Special knowledge Buy from, sell to and

sell with (GTM together)

Customized/ individualized

Process & data integration

Solutions oriented Shared rewards Greater cost value

leverage

Colla

bora

tive

Str

ateg

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Enhan

ced

0 = None 25 = Low 50 = Median 75 = High 100 = Perfection

Both partners need to define the topology of the progression and the ‘value of the journey’

LowValue

HighValue

LowIntimacy

HighIntimacy

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Alliance Best Practice Framework

There are 52 Critical Success Factors (CSFs)

identified from examining over 27,000

international strategic alliances.

By combining the principles established in

the CSFs a range of Best Practices (BPs)

have been developed

‘Tools’ refer to any documents that help users apply the Framework knowledge.

The Alliance Maturity Model TM establishes: current situation, (benchmark) current and future challenges, the nature of the journey’ and success strategies for cost effective progress.

DiagnosticsDiagnostics

MOUPMOUPBenchMarks

BenchMarks

Relationship OptimisationRelationship Optimisation

The ABPDBTM with 180,000+ entries lies at the heart of the Framework

ABPDTM

The Alliance Maturity Model AMMTM

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Stage IIStage I Stage III

• Planned investment in partnering capability

• Wide scale use of full range of alliance capability building

• Close integration of sales, marketing, innovation etc

• Separate corporate efforts in different areas of business• Strategic partners developed• Effort begun to adopt “best practices” in alliance

management

• Alliances are opportunistic• Each alliance is a ‘stand

alone’ venture• Alliances are not part of the

company’s “Standard Operating Procedure”

Company 2

Company 1

Individual relationship benchmark example

Generally consistent scoring

Client scored lower (usually) than the Partner

Differences were perceived in the following areas;- Co1 Defined business value

proposition- T2 - Partner company market

position- T3 - Host company market position- S7 – B2B Strategic Alignment- Cu8 – B2b Cultural Alignment- O2 – Speed of progress so far- O12 – Internal Alignment

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Co2 Co3Co4

Co5Co6

Co7Co8

Co9

Co10

T11

T12

T13

T14

T15

T16

T17

T18

T19

S20S21

S22S23

S24S25S26

S27S28S29

S30Cu31

Cu32

Cu33Cu34

Cu35

Cu36

Cu37

Cu38

O39

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O41

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O44

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O46O47

O48O49

O50O51 O52

Alliance Capability Model (ACMTM)

Alliance Capability Alliance Performance

Leadership

People

Processes

Commercial

Key Performance

Results

Governance Technical

Resources Strategic

Structure Cultural

Technology Operational

Internal Benchmarking on an Ongoing Basis : Continuous Improvement Cycle

Alliance Maturity Model (AMMTM) Alliance Best Practice Index

External Benchmarking Alliance Best Practice Database (ABPDTM)

The goal is to establish partnering as an organisational competence

KEY MESSAGES: Investment in training alone will not deliver alliance competence (AC) Alliance managers need ongoing support to produce best results Building capability is essential to delivering results AC = Competitive business advantage