how alliance management delivers value: moving beyond best practices

C o l l a b o r a t i v e N e t w o r k s A l l i a n c e M a n a g e m e n t C o l l a b o r a t i v e A b i l i t y

Volume2intheWhitePaperSeriesAllianceManagementataCrossroads

HowAllianceManagementDeliversValue:MovingBeyondBestPracticesJaniceTwombly,CSAPandJeffreyShuman,CSAP,PhD

How A l l i a n c e Mana g emen t D e l i v e r s V a l u e : Mov i n g B e yond B e s t P r a c t i c e s

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ContentsIntroduction 2TheJobofAllianceManagers 5AssessingtheAlliancePortfolio 9InformingtheAllianceManagementWorkPlan 15AllianceManagementCapabilityandthePortfolio 18EvaluatingAllianceManagement’sContributionto 23FinancialValueAllianceManagementataCrossroads 26AboutTheRhythmofBusiness 28


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IntroductionANecessaryCapabilityAlliancesandotherformsofcollaborationareanintegralcomponentofstrategy.Insomecompanies,theyaccountformorethan50percentofrevenues and new products. Entire business processes are beingentrustedtopartners.Asaresult,ithasneverbeenmoreimportantforan organization to manage these relationships well. The costs of notdoing so, which can include arbitration and litigation, stalleddevelopmenteffortsand lost time tomarket, aswell asan inability tocompetefordesirableassets,aresimplytoogreattoignore.Alliance management began as the ad‐hoc efforts of individualmanagersandevolved intoa setof “bestpractices” in response to thehistorical failure of asmany as70percent of alliances; a statistic thatslightlyexceedsthehistoricalfailurerateofnewbusinessstart‐ups.Wewonder howmany executives are aware of that fact as they embracealliances as a strategic tool for the first time. Probably very few, asevidenced by the currentmismatch of trained (and certified) alliancemanagers, along with the lack of a systematic approach to alliancemanagementcomparedwiththeburgeoningnumbersofalliances.Until one experiences the challenges of doing business through analliance, it seems nomore complicated nor requires any special skillsbeyondthatwhichallgoodmanagerspossess.Atonelevelthatistrue,but the challenge in an alliance or other collaborative arrangement isthattheworkofthecollaboration–buildingandmarketingtheproduct,conducting research, and other important activities plus thecollaboration itself – how the parties dividework, communicate withone another, make decisions, are accountable, and share resources,mustbemanaged.Alliancesareextremelybeneficialandcanbeasmartapproachtodoingcomplex,resourceintensivework.However,theaddedcomplexityandthus management risk they carry cannot be ignored nor can it beassumed that goodmanagers will intuitively knowwhat to do. Manysuccessfulbusinessexecutiveshavefailedwhentheytriedtheirhandatanentrepreneurialventure.Likewise,manysuccessfulcompanieshavefailedatalliances.Partner ecosystems or collaborative networks are the organizationtoday. Having an organization‐wide collaborative and alliancemanagementcapability isnecessary foranyorganization thatseeks tousealliancesasastrategyforachievingitsobjectives.Theprofessionofalliance management has an important role to play in leadingorganizations to amorenetworkedand collaborativewayofworking,instilling a management discipline that expands upon the traditionalbestpracticesfoundation.

The profession of alliance management has an important

role to play in leading organizations to a more networked and collaborative way of working, instilling a

management discipline that expands upon the traditional best practices foundation.


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TheEssenceofAllianceManagementThe purpose of alliance management, as is the case with anymanagement discipline, is to wisely use available resources to createvalueandmanagerisk. Inalliancesandothercollaborativeendeavors,muchofthatriskiscausedbythecomplexitythatoccurswhentwoormore entities are engaged in joint pursuit of desired outcomes. Thecomponents of complexity and risk vary based on the nature of therelationship, as do the types of value the collaboration is intended toproduce.Oneofthecorechallengesalliancemanagersfaceisthattheirexpertiseislargelyaninputtocreatingfinancialvalue.Exceptininstanceswhenalliancemanagersalsohavesalesresponsibilities,itcanbeveryhardtomeasurethefinancialvalueofgoodalliancemanagement.Asaresult,ithas been challenging for alliance management to gain traction if thepurpose of an alliance is to develop an asset, capabilities, or expandmarket reach, the value of which doesn’t immediately show up infinancial statements. Sometimes there are competing claims for value,such as distinguishing between the contribution of alliance mangersandsalespeoplewhenbothareinvolvedinmakingthesale.Thispaperdemonstratesthewaysinwhichalliancemanagersaddbothfinancial value and other forms of value by reducing managementcomplexity and risk. It shows how to use a framework of value andcomplexitytodecide:

• Howtoallocatealliancemanagementresourcesovergrowingandincreasinglycomplexallianceportfolios

• Whatmanagersshouldfocusontocreatethegreatestvalue

• HowtoevaluateandcommunicatetheReturnonRelationship(RoR)fromcollaborativeendeavors

• Howtousevalueandcomplexitytodeterminethedegreeofmanagementaspecificalliancerequires

• Howalliancemanagerscanguidedecisionsaboutpartnerselectioncriteria

Alliances and other collaborative endeavors are howbusiness is donetoday. It simplymakes sense for companies todevelop their ability tosucceedatalliances.Justasentrepreneurialmanagementdevelopedasauniquemanagementdisciplineinthe1970s,alliancemanagementisadeveloping discipline today, moving beyond the initial approach ofapplying so‐called best practices, embedding process and developingcollaborativeabilitythroughouttheorganization.Itshouldbenotedthatthealliancesandcollaborationsincludedinthisdiscussion are operating relationships. Licensing partnerships, whereone party simply collects a royalty for allowing another the use of anasset, or strategic investments where a company’s venture fund

The purpose of alliance

management is to wisely use available resources to create value and manage risk caused by complexity.


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provides capital, do not normally bring enough complexity to requirehands‐on alliance management, although that does not imply theserelationships have no alliance management needs. When the work issharedanddecisionsmustbemadejointly,makingboundariesfungibleandbridgingcultures,alliancemanagementisessential.Wealsousethetermsallianceandcollaborationinterchangeably,althoughalliancesarebutoneformofcollaborativeendeavor.Thetermsalliancemanagementor alliance manager are applicable to any shared work relationship,regardlessof the label attached to theparticulararrangement. It is itsnatureandthecharacteristicsof therelationship’smanagementneedsthatarerelevant.Companies need a consistent and value‐focused approach to buildingtheir ability tomanage alliances and other collaborative relationshipsthatmustgobeyondacollectionofbestpractices.Thispaperpresentsasetof frameworksand tools linkedbyanoverarchingphilosophy thatholdsthatmanagementmustevolvetokeeppacewithinnovationinthestrategiesandstructuresoforganizations.The methods and frameworks described herein have been used inmultipleindustriesandgovernmentalentities,foravarietyofobjectivesrelating tomanagingmulti‐organizationalcollaborativeendeavors.Weencourage you to think about how best to apply them in your ownsituationtomakethecasethatallianceandcollaborationmanagementisanessentialcapabilityforyourorganizationtoinvestinanddevelop.Ifyouareanalliancemanager,thinkabouthowtoelevateyourcurrenteffortssothatthedisciplinebecomesessentialtothecompanyandthevalueyouofferisreadilyacknowledgedandrecognized.

This paper presents a set of frameworks and tools linked

by an overarching philosophy that holds that the management of alliances and collaborations must evolve

beyond best practices to keep pace with innovation in the strategies and structures of organizations.


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TheJobofAllianceManagersCreatingValue,ManagingComplexityThe job of alliance managers is to maximize the value realized fromalliances and reduce the risk of failure due to the complexity of thecollaborative work of the alliance (see Figure 1). Risk and value willfluctuate over the lifecycle of an alliance, sometimes increasing,sometimesdecreasing.Thetwojuxtaposedpurposesofthejobmustbebalancedovertimesothatthealliancerealizesitsstrategicpurpose.

How is this accomplished when alliance managers often have littleauthorityoverothersandgenerallyarenotresponsibleforcarryingouttheworkofthealliance?Theimpactofalliancemanagementisseenin the effective operation of an alliance. Decisions get made,communication flows,work isshared,andresourcesareprovidedandused to achieve objectives in a timely manner. In addition, points ofconflict are anticipated, analyzed, negotiated, and resolved. Silos andgeographies are joined. Stakeholders are aligned around what’s rightfor the alliance, understand how that benefits the company andthemselves, and are willing to get behind it. When alliances aremanaged effectively, the risk their complexity poses isminimized andall the formsofvaluetheyare intendedtoproduceareavailable tobeturnedintothedesiredstrategicandfinancialoutcomes.The value of any alliance is that it allows an entity to accomplishsomething it otherwise would not be able to do, or to do so morequickly or more economically. It may provide a complete solution tocustomers, or gain access to an asset, amarket, customer segment, orresources, including cash, people, knowledge and capability. Let’sconsider awell‐knownalliance. At the outset ofApple’s alliancewithAT&T, Apple gained a distribution network and technical capability itdidn’thave tobuild,whileAT&Tgotaproductcustomerswantedandthus a competitive advantage over rivals that didn’t support Appleproducts.Lifescienceisanotherindustrydependentoncollaborations.

The impact of alliance management is seen in the

effective operation of an alliance. Decisions get made, communication flows, work is shared, and resources are

provided and used to achieve objectives in a timely manner.


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Within that industry, gaining access to a development stage asset notonlyprovidesacompanywithapotentialproduct,itmayalsoprovideitwith access to expertise needed to expand in a particular therapeuticarea.As these examples demonstrate, the value of an alliance has manycomponents, some of which are required to be realized prior toachieving financial outcomes. To wit, a specialty biopharmaceuticalcompanymay need to leverage the relationships its partner haswithKey Opinion Leaders in a new geography in order to penetrate thatmarket and build sales. It is the alliance manager’s responsibility toensure that the alliance is operating effectively enough to secure theresourceinatimelyandproductivefashion.The sources of value in a collaboration will depend on the strategicpurposeit is intendedtofulfill.Ago‐to‐marketallianceoffersdifferentsources of value than a product development alliance. Also, desiredsources of value change over the lifecycle of the relationship, as itprogresses from the development stage to commercialization. Somecommonexamplesofsourcesofvalue,notallofwhicharenecessarilyfoundinanysingletypeofalliance,include:

• Financialvalue–Theexpectedreturnontheinvestment

• Capability–Expertisethathasbroaderbenefits,orthatprovidesaccesstoabusinessprocessthecompanydoesnotwishtobuildinternally

• Capacity–Augmentationofexistingproductiveassets,suchasincreasingmanufacturingoutput

• Access–Avenuestonewcustomersormarkets

• Expansionopportunities–Additionalpartneringopportunitiesthatincreaseresourceleverage

• Productportfolio–Newofferingsinanareathatisofstrategicpriority

• Reputation–Thecompany’scredentialsasagoodpartneroritsbrandinthemarketplace

As illustrated in Figure 1, the downside of alliances is managementcomplexity. Tomaintain operating effectiveness, the alliancemanagermustaddresstherisksinherentincomplexitysothattheydon’tpreventrealizationofvalue.Quiteoften,thismeansminimizingthecostoftime.Every delay that is caused because someone doesn’t know somethingwhen it is needed to be known, or every day that the partner isn’ttrained to sell and meet their contractual requirements, reducesfinancial value. In some instances, that lost value can never berecovered.What causes complexity? The very essence of collaboration –coordinating activities and communicating information in order to

The value of an alliance has many components, some of

which are required to be realized prior to achieving financial outcomes.


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leverage resources to do something neither party could accomplish ‐withouttheother–resultsincomplexity.Alliancesmustoperatewithinthestructures,cultures,processes,andprioritiesofatleasttwoentities,whilebuildingatrust‐basedenvironmentthatallowstheseboundariestobecrossedwithease.Withoutveryproactivemanagement,workcantakelonger,thuserodingpotentialvalue.Valuecanalsobelostif,eitherinadesiretobecollaborative,orifthereis a deficit of trust and confidence between thepartners, toomuch inthewayofresourceisallocatedtoanallianceandduplicationofeffortresults. Another common loss of value is if alliance team membersconsultwithandengagetheircounterpartsunnecessarily.Decidingthatwork shouldbedone independentof one another,with accountabilityto the alliance for the outcome, can be the best approach in certaincircumstances.Effectiveallianceteammembersnever losesightof thefactthatcollaborationisameanstoanendnottheobjective.Toomuchcollaborationcanbeascounterproductiveastoolittle.Alliancemanagers focusa lotof effort andawide rangeof their skillsand talents on mitigating the risk of losing value as a result ofcomplexity. The governance process is a key component of thisendeavor, as is ensuring the internal organization is aligned beforeengaging with a partner. So too is coaching and guiding others indevelopinganorganization’spartneringcultureanddiscipline,definingthecollaborativebehaviorsitconsidersappropriate.Thespecificcausesofcomplexityaremanyand,aswithpotentialvalue,will vary depending on the nature of the alliance. Among the moreprevalentare:

• Decisionmaking–Howbroadlydecisionmakingissharedbetweenthepartiesorhowchallengingitmaybetogetalignmentinone’sownorganization

• Relationshipscope–Therangeoflifecyclestages,geographies,affiliates,technicalplatforms,contractualagreements,etc.theallianceentails

• Numberoftouchpoints–Inadditiontothescopeoftherelationship,thenumberofpeopleengagedinthecriticalcommunicationandactivitystreamsandthechallengeinpresenting“oneface”tothepartner

• Priorityalignment–Differingprioritiesplacedonthealliancebyeachpartner.Thisisespeciallylikelywhenthepartnersareofsignificantlydifferentsizes

• Experienceofdoingbusiness–Newnesstopartnering,lackofflexibilityortransparency,complexityofadministrativeprocedures,lackofalliancemanagementexpertise

• Partnerselfsufficiencyorcapability–Abilitytotakeresponsibilityforbusinessprocessesoruseweb‐basedresources

• Confidenceandtrust–Extenteachpartybelievestheotherwillactinthebestinterestoftheallianceandhastheabilitytoproduceworkatitsexpectedlevelofquality

Alliances must operate within the structures, cultures, processes, and priorities of at least two

entities, while building a trust-based environment that allows these boundaries to be crossed with ease.

Without very proactive management, work can take longer, thus eroding potential value.


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In addition to these characteristics, an often overlooked cause ofcomplexity is the lack of alignment in the timing of key corporateprocesseswith alliance governance. For example, if the partners havedifferent fiscal years it can be challenging to find a timeframe whenboth parties have sufficient internal information and authorization tocommit to an alliance budget and work plan. Or if the top levelgovernancecommitteeofanalliancefromonepartnerhastheabilitytomake resource commitments and the other doesn’t, special processmust be put into place. Additionally, extra communication and trustbuilding must occur so that the partner with streamlined decisionmaking understands the hoops the othermust go through to reach adecision and accepts thatwhatmight seem to be “behind the scenes”decisionmakingisn’tanattempttounderminethealliance.Becausethevalueactuallyrealizedfromalliancesisonlydeterminedasthealliance isexecutedandhowwell thealliance isexecuteddependsonmanagingthecomplexity, thetwocomponentsoftheframeworkofthe job of an alliancemanager (Figure 1) are inexorably linked. Thus,for more complex alliances, greater management effort is needed inordertorealizethedesiredvalue.Theuniquecomplexity/valueprofileof each alliance, and more broadly, each type of alliance, offers awindow into how it is best managed. Looking across alliances isincreasingly important as portfolios grow and alliances andcollaborativenetworksbecomethepredominateformoforganization.


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AssessingtheAlliancePortfolioTheAlliancePortfolioThe increasing use of alliances and other collaborative businessrelationships necessitates moving from managing them on a one‐offbasistogroupingthemintoportfoliosdependingontheirpurpose.Forsome companies, a single portfolio for all their collaborativerelationshipsissufficient.Eachrelationshipinaportfoliomakesauniquecontributiontostrategicobjectives. In organizations where alliances are truly central to theirstrategy,multiplecollaborativerelationshipsmaybeneededinordertoachieveaspecificobjective.Forexample,acompanymayhavecertainalliances to develop new products and may have another set ofrelationships to reach customers globally. The value sought and theriskspresentedbyeachofthesetypesofrelationshipswillbedifferent.Within each type or category of relationship, each alliance will bedifferent. For the following discussion, think of each category ofrelationship as a separate portfolio, each having specific criteria thatdefine the value it is intended to bring and specific elements ofcomplexitythatmustbemanaged.Organizationsdon’t always consider the strategic implicationsof theiroverallallianceportfolio.Analliancethatbyitselflookspromisingmaynot necessarily be value‐creating from an overall alliance portfolioperspective, especially if thereare competitive issues to consideror ifresources are limited and must be drawn from other promisingalliances.Consequently,theformationofanewallianceorcontinuingtoinvestinanexistingalliancemaybeanoverallvaluedestroyingmove.Additionally, it is more likely that management resources will beoptimallydeployed if themanagementofalliances isapproachedfromthe standpoint of the potential value andmanagement risk caused bythe complexity of a specific type of alliance, as well as that of eachalliancewithin the portfolio. Over‐management ormore likely under‐management, anda lossof value resultwhenan alliancedoesn’t havetherightresourcesallocatedtoit.Bycategorizing itsalliancesandothercollaborations intoportfoliosofrelationshipswithsimilarstrategicpurposes,acompanycan:

• Assesswhethertheoverallportfolioisprovidingthedesiredstrategicvalue

• Recognizetheportfolioimplicationsof,andon,theindividualalliancesthatcomprisetheportfolio

• Identifyandaddressproblemsthatarecommonacrossalliances

An alliance that by itself looks promising may not necessarily be value-creating from an overall alliance portfolio

perspective. Consequently, the formation of a new alliance or continuing to invest in an existing alliance may be an

overall value destroying move.


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• Allocatelimitedresourcesmoreeffectivelyacrossalliances

• Understandthenatureofthealliancecapabilitythecompanyneedstoeffectivelymanagetheportfolio

• Facilitatecommunicationanddecisionmakingforseniormanagementrelativetotheportfolio

The discussion that follows offers a framework for assessing eachcategoryofalliancesanddetermininghowbesttomanageit,aswellasthe individual alliances that comprise the portfolio. For simplicity’ssake, we are assuming a single alliance portfolio within a givenorganization.Ourassumptionexposesthefirstcomplexityinanalyzingtheallianceportfolio:Whatisinandwhatisoutsideofagivenallianceportfolio? Fortunately, an initial pass at analyzing all collaborativerelationships with the management complexity/potential valueframeworkcanclarify thedistinctionsandsimilaritiesandhelpdefinelogicalboundariestotheportfolio.ValueandComplexityCriteriaforaPortfolioofAlliancesDefining what constitutes value and complexity is the linchpin inassessing an alliance portfolio. To do so, one must have a thoroughunderstanding of company strategy and the role of alliances inachievingthatstrategy.Keep inmindthat theonlygoodreasonforanalliance to exist is that it helps an organization accomplishwhat it istryingtoachievemoreeconomicallyandfasterthanitotherwisecould.Ifthatisn’ttrue,thealliancewillwasteresourceandshouldn’texist.Deciding the criteria to use to define value and complexity is aniterative process. Use the guidelines presented earlier to determinewhatisrelevantforthespecificportfolioinquestion.Mechanically,itisimportant that there are an equal number of criteria for value andcomplexity. At least three criteria for each should be identified,preferablywithamaximumoffive,althoughsevenisstillmanageableiftheyaretrulydistinct.Thekeyistohavecriteriathatarebroadenoughtoapplytoanentireportfolioandspecificenoughthattheyarerelevanttoallallianceswithintheportfolio.Asanexample,Figure2representscriteriathathavebeenusedwithaportfolio of biopharmaceutical alliances that include co‐developmentthroughco‐promotionactivities.Thesearerelationshipsthatenvisionasignificant degree of shared decision making, joint work, resourceleverage,andareexpectedtoexistforaverylongtime.Eachfactorcanbe assessed using a scale from 1 to 5, where 1 equals less potentialvalue or less management complexity and 5 equals greater potentialvalue or greater complexity. See the sidebar, Gaining Consistency inScoring, for suggestions about improving the objectivity andconsistencyofscoring.

Defining what constitutes value and complexity is the

linchpin in assessing an alliance portfolio. To do so, one must have a thorough understanding of company

strategy.


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Figure 3 provides another example of specific criteria, this timerepresentingpartnerswho sell and service an information technologycompany’sproducts.Whilenotconsideredstrategicalliances, theyareessential to the business and considerable investment goes intosupportingthesecollaborativerelationships.Thepartnermanager’sjobremains creating andmaintaining an effective operating environmentbymanaging the complexityof the relationshipandworking toutilizeall intended sources of value. Again, each relationship in the portfoliocanbescoredbyapplyingthesame1–5scaletoeachspecificcriterion.

Gaining Consistency in Scoring

Using a scoring mechanism like the one described herein has both its pluses and minuses. On the positive side, it is is backed up by analysis. At this level, precision is not required, just thoughtful and logical consideration that drives the next set of assumptions about what to do.

Critics will claim this method is too subjective and likely to bring about different results, depending on who is doing the scoring. An easy way to address that claim is to bring together all the alliance or partner managers who have responsibility for the relationships included in the portfolio. Let each person separately score their relationships and then discuss the rationale for each set of scores. Let them challenge each other and assess one relationship against another. What will emerge is a common understanding of what constitutes a specific score on an individual criterion. Over time, definitions of individual scores may be developed.

This is an excellent activity to include in a year-end review or annual planning session. As will be seen later in the paper, the evaluation of the individual alliances and the portfolio should inform the work plans for each, given that they are based on the two key purposes of alliance and partner management – realizing value and reducing risk.


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UsingtheCriteriatoScoreandMapthePortfolioBecause the two components of the alliance manager’s job must bebalancedtodrivedownriskandrealizevalue,a2x2matrix(seeFigure4)istheidealtoolforvisualizingtheportfolio.Thetotalsofthescoresgiven toeachalliance for themanagementcomplexity criteriaand thepotential value criteria areplottedon thematrix.Theminimumscoreforeachaxisis(1)x(thenumberofcriteria)andthemaximumscoreis(5)x(thenumberofcriteria).Figure4assumesfivecriteriaareused.

Figure4 ComplexityValueMatrix

Taken together, the relationship between potential value andmanagement complexity offer a Return on Investmentmetric thatwecallReturnonRelationship(RoR)(SeeFigure5).TheRoRisameasureofnet benefit from an alliance or other collaborative relationshipcalculatedbycomparing thepotentialvaluerelative to the investmentofthetimeandefforttomanagethealliance’scomplexity.

Individual RoR scores can be aggregated into logical sub‐groupings,such as by product family, region, partner tier, or lifecycle stage toprovideanadditionallevelofanalysisofagivenportfolio.Alliances and collaborations are ameans to an end; a strategic choiceabouthowtoachieveobjectives.Tobeworthwhile,overtimethevalueofwhatonereceivesmustbegreaterthanthecostofreceivingit.Andbecause alliances and collaboration must provide benefit for allconcerned, each party must perceive that the benefit (the “get”) isgreaterthanthecost(the“give”).However,becausemuchofthevaluein an alliance is a precursor to financial value,what is important andusefultoonepartytothecollaborationmaybeoflimiteduseandvalue

The Return on Relationship is a measure of net benefit from an alliance or other

collaborative relationship calculated by comparing the potential value relative to the investment of the time and effort to manage the alliance’s

complexity.

Q1 Q2

Q4 Q3


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toanotherparty.Additionally,ifthatvalueisn’tavailabletoberealizedinatimelymanner,valueislost.Onlytherecipientcanassessvalue,asvalue is personal, relative, and time sensitive. Something may be ofnegligiblevalueto thepartyoffering it,but itmaybeexactlywhat therecipientneeds,orviceversa.Becausevaluecanonlybeassessedbytherecipient, it makes little sense to try to calculate the return oninvestmentofanallianceusingaone‐dimensionalandone‐sidedviewofthevalueoftherelationship.In the RoR calculation, the Potential Value represents the “get” asassessed by the recipient of the value. Management Complexity isrepresentative of the time and effort thatmust be expended. It is the“give” the recipient must spend in order to realize the “get.” In thismanner,itispossibleforeachparticipanttoassessthealliancefromitsperspective–andforbothtorecognizenetbenefit.Thisistheessenceof what is meant when alliances are described as relationships thatmustbewin‐win.Eachpartymustbelievethatthevaluereceivedfromanallianceisgreaterthanthetimeandeffortittakestogetit.Mapping the scores on the Complexity Value Matrix presents avisualization of the portfolio that can be used to provide insight andmakedecisionsabout:

• Howtoallocatemanagementresourcestotheportfolio• Howtomanagethealliancesintheportfolio

Tomapeachrelationshipintheportfolio,locateitattheintersectionofthe potential value and complexity scores. Once this is done for eachalliance, stand back and assesswhat the picture represents. To guidethediscussion,asampleportfoliohasbeenmappedinFigure6.Figure6 SampleAlliancePortfolio

The45degree lineon thematrix inFigure6 reflects thedividing linebetween those alliances that are providing a “positive” return on the

Each party must believe that the value received from an alliance is greater than the

time and effort it takes to get it. This is the essence of what is meant when alliances are described as

relationships that must be win-win.


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investment of time and effort to manage the complexity (allrelationships to the right of the line) and those where the potentialvalueislessthantheinvestment(allrelationshipstotheleftoftheline).Inourexperience,allianceandpartnermanagersareshockedtoseethenumberof relationshipsandwhich relationships fall on the left of the45 degree line. These are relationshipswhere the “give” ismore thanthe “get.” Thatmay be the right balance for certain relationships thatare in a development stage, where one is consciously investing. Thepositioningofportfoliosisnotstatic.AnalliancethathasaRoRof lessthan100%todaymaybecomemuchmorepositiveasitachievescertainmilestonesorspecificactionreducescomplexity.Itmayalsomeanthatthe relationship is a resource sink, requiring too much managementtimeandattentionforthereturnitoffers.Allianceprofessionalsarealsooftensurprisedattherelationshipsthatperhapsaren’tascomplicatedastheyfirstappear,oncesubjectedtothecomplexity/valueanalysis.Ifonecompanyhasmostofthecontrolandisresponsibleformostofthework,theallianceshouldbecomeeasier.This will prove true if the alliance manager can prevent his or hercolleagues from granting a greater role in the alliance to the partnerthan anticipated in the contract and the partner with the lesser roletruststheotherwillactinthebestinterestofthealliance.Themappingoftheportfolioprovidesacommunicationtoolthatcanbeused to assesspartner selection criteria for specific types of partners.For example, if toomany partners don’t have the capacity to take onadditional customers or products, the evaluationof potential partnersmay need to be adjusted to bring in more partners with capacity.Similarly,ifmultiplepartsoftheorganizationhavearelationshipwithapartner, evaluating the partner from each organizational unit’sperspective will give a holistic perspective on the partner. In someinstances, value thatonegroup realizesmaybeoffsetby the resourcedrainonanother.Analyzinganallianceportfoliofromtheperspectivesofcomplexityandvalueleadstoquestionssuchas:

• Whydowehavethisalliance?

• Doteammembersrealizehowimportantthisallianceistousstrategically?Conversely,dowerealizeitisactuallywastingresources?

• HowareallianceswithRoRofgreaterthan100%alike?

• Likewise,howareallianceswithRoRoflessthan100%alike?

• Importantly,inwhatwaysdothegreaterthan100%RoRalliancesdifferfromthelessthan100%RoRalliances?

With these questions and the data, the alliance manager can plot acourseof action forhisorheralliances, in concertwithaplan for theoverallportfolio.

Alliances that map to the left of the 45 degree line have a RoR of less than 100% and consume resources; those

that map to the right of it have a RoR of greater than 100% and provide value.


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InformingtheAllianceManagementWorkPlanEvaluating individual alliances as well as the portfolio based on theframework of management complexity and potential value providesalliancemanagers with a strategically aligned analysis fromwhich todetermine how they can improve operating effectiveness and drivevalue. As alliance managers plan their activities, this frame shouldinformtheday‐to‐dayworkofgovernance, stakeholderalignmentandvalue creation. It should also inform specific projects not necessarilydefined by a single alliance to develop the collaborative ability of theorganizationandtoimproveitsalliancemanagementexcellence.To gain the greatest benefit from this analysis, start at the portfoliolevel.Aretheremanagementcomplexitycriteriathatconsistentlyscorehigh? For example, if many partners aren’t taking advantage of web‐based resources thatmake them self‐sufficient and reduce the “hand‐holding”bypartnermanagers,whatisitabouttheweb‐basedresourcesthat don’t meet the partners’ needs? Tackle this on a portfolio widebasis and the benefits will be significant. Can they be measured infinancial terms? Absolutely. Measure the cost of time saved by thepartnermanagerandotherswhonolongerhavetohand‐holdpartners,relativetothecostofimprovingtheweb‐basedresources.Looking across the portfolio can be fascinating. One companydiscovered that alliance teammembers considered nearly all of theirpartners difficult to do business with.When they thought about that,theyrealizedthatthecommonalitywas…them!Thatresultedinabitofsoul‐searching and the realization that its less‐than‐systematicapproachtoallianceswascausingunnecessaryconfusionandimpedingthe flowof information.A singlepointof contactwithineach functionforeachpartnerwasquicklyimplemented,andcaretakentobecertainthis was well understood, both by the partner and internally. Bystreamlining the overlapping communications, team members nolongerwastedtimesortingoutconflictinginformation.Importantly,when theportfolio as awhole is analyzed, one can standback and assess if it is providing the desired strategic and financialvalue. For example, if oneof the strategic objectives is to gainmarketshare inaparticular customersegment, and thepotentialvalueof therelationships intendedtodothis is low, it isreasonable toassumethegoalwill not bemet in a timelymanner and corrective action can betaken.When addressing a specific alliance, how the criteria are assessedprovides a roadmap for how to improve operating effectiveness. Forexample, suppose the criterion “decision making” is rated ascontributing to complexity because it is shared equally and it is notclearthatthemembersofthegovernancecommitteesactuallyhavethe

The complexity/value profile

of an alliance should inform the day-to-day work of governance, stakeholder alignment, and value

creation.


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authoritytocarryouttheirmandate.Thealliancemanagermightdecideit is time toreviewthecompositionof thegovernancecommittees.Orperhaps one of the purposes of the alliance is to gain distribution incertainmarkets, yet that is not proceeding as quickly as desired. Thealliancemanagershouldrecognizethatasanopportunitytodrivevalueandworktolaunchtheproductinthosemarketsorperhapsembarkonanegotiationtowinbackcertainrights.Thecriteriaprovideadetailedlookateachallianceandallowtheportfolio tobeexamined intotalityfromacommonframework.Anotherviewofthematrixisshapedbyitsfourquadrants.Therelativecombination of management complexity and potential value for eachquadrant (See Figure 7) suggests a generalized management strategythat can be applied to relationships that fallwithin the quadrant. Thearrows represent possible paths to guide the alliance to a moredesirablepositionintheportfolio.

Figure7 RelationshipSegmentation

• Q1InvestingResources–TheRoRofallrelationshipsinthisquadrantislessthan100%.Theyconsumeadisproportionateleveloftimeandeffortduetotheirhighmanagementcomplexitybutarenotprovidingmuchvalue.Trytoincreasetheperceivedpotentialvalueand/orreducemanagementcomplexityandmovetoQ2orQ4.Ifneithercanbedone,considerre‐negotiatingorterminatingthealliance.

• Q2RelationshipComplexity–Alliancesinthisquadrantprovidesignificantvaluebutrequirealotoftimeandefforttomanage.TheycanhaveanRoRrangingfrom60%to167%,assumingthatfivecriteriaarebeingscored.Trytoreducethecomplexityofmanagingtheseallianceswithoutreducingthevalueprovidedwhilelookingforadditionalopportunitiestoexpandvalue.However,someallianceswillalwaysbeextremelycomplex,simplybecauseoftheirgeographicscopeandrangeofactivity.Everybalancedallianceportfoliowillalwayshaverelationshipsinthisquadrant.

The relative combination of management complexity and

potential value for each quadrant suggests a generalized management strategy that can be applied

to relationships that fall within the quadrant.


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• Q3LeveragingResources–TheRoRofallrelationshipsinthisquadrantisgreaterthan100%.Alliancesinthisquadrantprovidesignificantvaluewithoutconsumingalotofmanagementresources.Carehastobetakenwiththesecollaborationssothatthepartneralsoseesitasarelationshipthatprovidessignificantvalue.Ifitdoesn’tconsidertherelationshiptobeoneofgreatvalue,thelackofalignmentcouldleadtoadditionalcomplexityorteammemberscouldfeelthattheyneedtogooutoftheirwaytoprovidegreatervaluewhichcouldincreasethenumberoftouchpoints,peopleinvolvedindecisionmaking,etc.Thesearealsoopportunitiesthatareripeforinnovation,asthehighvalueandrelativelylowcomplexityenvironmentprovidesopportunitiestoexpandthevalueeachpartyreceives

• Q4RelationshipClarity–AlliancesinthisquadranthaveanRoRthatrangesfrom33%to300%(basedonfivecriteria).Considerrelationshipsinthisquadrantasessentiallytransactional,“arm’s‐length”contractswheregreatervalueisrealizedbyminimizingthetimeandeffortittakestoreceiveit

AscanbeseenfromtherangeofRoRscores,itisadvantageoustohaveabalancedportfoliotodeliverintendedstrategicandfinancialvalue.Itmaybecounter‐intuitivethatlowvaluerelationshipssituatedinQ4aredesirable. Running the numbers shows thatmay indeed be the truth,especially in circumstanceswhen a large number of relationships arerequiredtogainthebreadthofvaluerequired.Muchof thediscussionhasbeenabout reducing complexity, yetQ3&Q4 show arrows reflecting the intent of increasing the level ofcomplexity.Whywouldacompanywanttodothat?Asdescribedabove,it could be forced upon it in an effort to preserve value. The otherreason a company may want to increase the effort is to invest in aninnovative project that would expand value for all partners. If it isbelievedthatitispossibletomoveaQ4alliancetoQ2,thelikelypathisaninvestmentoftimeandeffortthatmovestherelationshipfirsttoQ1andthentoQ2asthevalueincreases.Oneadditionalmanagementstrategyisrelevantwheninrareinstancesitmay,overtime,bepossibletoidentifyameanstoincreasepotentialvaluewithoutasignificantincreaseincomplexityandmovethealliancedirectlyfromQ4toQ3.Individual alliances and the alliance portfolio overall are not static.External circumstances, such as new competitors, acquisitions, andchanges in the regulatory environment all impact the value andcomplexityoftheportfolio.Additionally,asthealliancemovesthroughitslifecycle,thebalancebetweencomplexityandvaluewillchange.Thechallenge for the alliancemanager is to recognize the rightbalance atanygiventimeforanindividualallianceandtaketheactionsnecessarytocreateadesirableReturnonRelationshipmeasure.

As the alliance moves through its lifecycle, the

balance between complexity and value will change. The challenge for the alliance manager is to recognize the

right balance at any given time for an individual alliance and take the actions necessary to create a

desirable Return on Relationship measure.


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AllianceManagementCapabilityandthePortfolioDesigningtheCapabilityEvery companymust address how tomatch its ability to do businessthrough collaborationwith its current portfolio of alliances. As we’veseen,thatabilityisgroundedintheeffectivenessofallianceoperations,as defined by the ability to reduce risk by managing complexity andrealizing the full intended (and expanded) value of the relationship.With the alliance portfolio analyzed from this perspective, reasoneddecisions can be made about how much management each allianceneedsandthus,thecompositionofthecapabilityrequired.It stands to reason that an alliance with high complexity and highpotentialvalueneedsadifferentdegreeofmanagementthananalliancewithlowcomplexityandlowpotentialvalue.Theformerlikelyrequiresadedicatedandhighlyskilledalliancemanager.Thelatterdoesn’t.Orifsuch a person is responsible, it is a very light touch. In these days oflimited resources, it is increasingly important for leaders to carefullyallocate their scarce alliance management resources so that theyprovide the greatest good. This is an iterative process that demandsgreatagilityandflexibilityinorganizationdesignandoperation.Whenalliancesandothercollaborativerelationshipsaresopervasive,itis imperative that an organization has a consistent and systematicapproachtohowitmanagestheserelationships.Thebestpracticesanorganizationor individual alliancemanager followsneed tobewoventogether, aligned, and augmented to reflect a company’s approach tomanaging alliances and collaborations. One of the requirements forbeing successful with alliances is that everyone in the organizationinvolvedwith collaborative relationships has sufficient understandingofthenatureoftherelationship,whatitisintendedtoachieve,howitisoperated and governed, the expectations of themselves in interactingwith thepartner, aswell aswhat is outside of the relationship.Often,peopleareinteractingwithmultiplepartners,eachwithdifferentrules.Thecostoftimeandthepotentialforpoorlyinformedandshort‐sighteddecisionsincreaseswheneversomeoneworkingonanalliancehesitateswhenheorsheisnotsureoftherulesofengagement–orworse,givesawayvaluebybeingoverly‐accommodating.A systemized process of managing collaborative relationshipsthroughout their lifecycle (see Figure 8) provides whoever has thealliance management responsibility with policies, common ways ofconductingactivities,communicationanddecisionmakingtools,aswellasmeasurementandevaluationframeworkstoapplytoensurethatthegovernance, alignment and value creating work of the alliance isappropriately planned, conducted, analyzed and improved. Theseshouldbeflexibleenoughsothattheycanbetailoredtomeettheneeds

Every company must address how to match its ability to do business

through collaboration with its current portfolio of alliances. With the alliance portfolio analyzed from the

perspective of management complexity and potential value, reasoned decisions can be made about how

much management each alliance needs and thus, the composition of the capability required.


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of all collaborative relationships and result in achieving operatingeffectivenessthroughouttheportfolio.

Figure8 CollaborativeRelationshipLifecycle

The centrality of alliances to company strategy and the structuring ofwork into collaborative networks or ecosystems of alliances demandsmovingbeyondacollectionofbestpracticesthathavebeendrawnfrommany disparate contexts. Alliance management must evolve into adisciplinebasedon a set of beliefs, guidance, practices, and tools bestable torealizevalueandmanage thecomplexitycausedby theuniquefeaturesofalliancesandinter‐entitycollaborations.AligningAllianceManagementCapabilitywiththePortfolioMost organizations will find they are best served by developing acapabilitythatisagileenoughtoappropriatelymanagethespectrumofalliancesthatmakeuptheirportfolioandthatcanadaptastheportfoliochanges.Thisiseasiersaidthandone.Itmakesitpracticallyinevitablethatallalliancescannotbe(orshouldbe)handledbydedicatedalliancespecialists. The key is that the tasks related to managing thecollaboration are acknowledged and recognized as part of theindividual’s job. Most importantly, these part‐time alliance managers,sometimes referred to as “accidental” alliancemanagers, collaborativeprogram managers, or embedded alliance managers, are an essentialpart of the alliance capability of any organization and should besupported by alliance specialists in implementing the consistentalliancemanagementphilosophy,processes,tools,andmetrics.The complexity/value profile of each quadrant of the PortfolioSegmentationMatrix(Figure7),andthemanagementstrategiesimpliedbyeachquadrant,suggestswhenanalliancespecialistmustbeutilized.Equally, they point to the circumstances in which a manager withbroader responsibilities (referred to herein as a part‐time alliancemanager) can take responsibility for the alliancemanagement aspectsoftheprogram,product,orbusiness.Thefollowingnarrativeexaminesthepotentialstaffingscenarios:

• Q1InvestingResources–Collaborativerelationshipsinthisquadrantareeitherbeinginvestedintoultimatelyproducevalueortheyarearesourcesink,consumingwithoutthelikelihoodofproducingvalue.ItistheresponsibilityofthealliancemanagertodevelopandimplementaplantomovethatrelationshiptoapositionofaRoRgreaterthan100%assoonaspractical.IfthesituationisoneofinvestingtomovetheallianceonapathfromQ4tooneofgreatervaluethattakesitthroughQ1,theday‐to‐dayworkcanbedonebyapart‐timealliancemanageraspartofhisorher

It is practically inevitable that all alliances cannot be (or should be) handled by

dedicated alliance specialists. The complexity/value profile of each quadrant of the

Portfolio Segmentation Matrix, as well as the management strategies implied by each quadrant,

also suggests when an alliance specialist must be utilized.


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overallresponsibility.Thisindividualshouldbesupportedbyanalliancespecialistwhocanserveasacoach,monitoringperformance,evaluatingprogressandsuggestingcoursecorrections.Inthisway,thealliancespecialisthasalight,yetfocusedtouchonthealliancewiththesolepurposeofmakingtheinvestmentpayoffassoonaspossible.

Ontheotherhand,ifarelationshipisconsideredaresourcesink,are‐negotiationtoeitherchangetheworkingrelationshiporvalueexchangeisrequired,perhapsincludingtermination.Thisrequirestheskillsofanalliancespecialist.Itisprobablybesttohavehimorherhandletheday‐to‐daymanagementaswell,sothatheorshebecomeswell‐versedinwhatiscausingtheissuesandcansuggestanappropriatecourseofaction.

• Q2RelationshipComplexity–Collaborativerelationshipsinthisquadrantaremarkedbyahighdegreeofcomplexityandhighpotentialvalue.Theyaretherelationshipsthatareworthyofattentionupanddownthecorporatestructureandacrossfunctionsandgeographies.Theygenerallyinvolvemultipleworkstreamsandhavemanytouchpoints.Itispossibletoreducecomplexitythrougheffectivegovernance,formalizingcommunicationflows,followingsoundoperatingprinciples,focusingoninternaldisciplineinregularandquitefrequentpartnerengagements,aswellasrigorousplanningandevaluation.Relationshipsinthisquadrantrequireadedicatedalliancespecialistaspartoftheallianceleadershipteamandinsomecasestobethebusinessowner,entrepreneur,orgeneralmanagerofthealliance.

• Q3LeveragingResources–Collaborativerelationshipswiththiscomplexity/valueprofileareamongthemostadvantageous.Theyranklowonthecomplexityscale,buthighonthevaluescale.

Thegoalforthesecollaborationsmaybetomaintainthestatusquo.Thisimpliesthattheserelationshipscanbemanagedday‐to‐daybysomeonewithbroaderresponsibilitiesfortheworkofthealliance,suchasdevelopingandmarketingtheproductormanagingtheaccountofamajorsystemsintegratorinaninformationtechnologyenvironment.Incertaininstances,thesizeandscopeofthealliancemaybesosignificantthatitmakessensetohaveadedicatedallianceprofessionalaspartoftheteam.Ineithercase,planningandevaluationactivitiesshouldpayspecialattentiontoconfirmingthatthepartneralsoseesgreatvalueintherelationship.Ifitdoesn’t,complexitymayincreasebecausethepartnerplacesalowerpriorityontheallianceorbecomeshardertodobusinesswith.Itmayalsopullbackontheresourcesitoffers.

Therelationshipsinthisquadrantalsopresentopportunitiestoexpandvaluebyfindingnewrevenuestreamsorotherwaystoleverageoneanother’sresources.Theevaluationofopportunities,whetheritisattemptingaprojecttoreducedevelopmentcostsby


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givingonepartnermoreauthorityorthepossibilityofbuildinganewbusinesstogether,shouldbeledbyanalliancespecialist.Newplansandlikelycontractamendmentsorfreshcontracts,willneedtobedevelopedandnegotiated,callinguponthespecialist’suniqueskills.Ofcourse,thealliancespecialistcannotexpandvaluebyhimselforherself.Nodoubtacross‐functionalteamwillberequired,ofwhichtheday‐to‐daymanagerisakeymember,responsibleforensuringcontinuityofintentions

• Q4RelationshipClarity–Collaborationsinthisquadrantarereasonablysimpletomanageandrelativelylowonthevaluescale.Thatdoesnotmeantheyareundesirableifappropriatelycontributingtoachievingastrategicobjective,nordoesitmeantheyaredevoidofalliancemanagementrequirements.Insomeinstancestheymaystartasafee‐for‐servicearrangement,withtheoptiontooptinmorecompletely,shouldcertainmilestonesbemet.Increasingly,researchalliancesorrelationshipswithacademiaarebeingstructuredinthismanner.

Inalmostallinstances,relationshipsinthisquadrantcanbemanagedaspartofsomeoneelse’sresponsibility,oftenbyascientist,manufacturingexpert,servicepersonnelorcontractmanager.Thisresponsibilitymustbeacknowledgedaspartofthejob,heorshemustunderstandhowtocarryoutthatresponsibility,andhaveaccesstothetoolsandexpertiseofthecompany’salliancespecialists.Toooftenthisisnotthecaseandunder‐managementresultsinleavingvalueonthetableorexposingthecompanytounnecessaryrisks.

Figure 9 provides a summary of how responsibilitymight be dividedamongtheportfolioquadrants,basedonthemanagementstrategyforaspecificrelationship.In addition to decisions about how responsibility for creating allianceoperating effectiveness is distributed, a thoughtful approach todetermining how “much” management and orchestration a specificalliance requires is essential. The complexity/value profile of thecollaborations in each quadrant, as well as the management strategybeingpursued,isaguidehere,too.Allcollaborationsrequireplanning,execution, and incorporating analysis and learning into plans. Theformality and extent of those processes can be shaped accordingly ifone has an overarching framework to apply. The appropriate use ofmanagement resources covers not just the qualifications andresponsibilitiesoftheindividualassigned, italsoincludesdeterminingsuchthingsashowoftengovernancemeetingsmustbeheld,thepeopleassignedtogovernanceteams,notificationandreportingrequirements,and reviewsof resource allocations. If a companyhas amanagementphilosophy, processes and tools in place for the most complex ofalliances (Q1 and Q2 alliances), it is reasonably straight‐forward toscalethemdowntoapplyappropriatelytoalliancesinQ3andQ4.

A thoughtful approach to

determining how “much” management and orchestration a specific alliance requires is

essential. The formality and extent of those processes can be shaped accordingly if one has an overarching

framework to apply.


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Creating operating effectiveness throughout an allianceportfolio doesnot require adding layers ofmanagers or building an empire. It doesrequire assessing the portfolio and making smart decisions so thatthere is just enough talent and process to ensure alliances and othercollaborations deliver on their intended strategic and financial value.Managingalliancesisnotonlytheresponsibilityofaselectfew;rather,as theyare increasinglyhowbusiness is conducted itbecomessharedresponsibility and a necessary capability of the organization. Allianceprofessionals must ensure that there is one individual who has thestatedresponsibilityofensuringtheoperatingeffectivenessofeachandevery collaborative relationship. Their role must have formalaccountabilityandtheymusthaveguidance,processes,andtoolsbuilton a consistently applied philosophy, to draw upon to manage theinherent complexity, thereby reducing risk and realizing all potentialvalue.

Figure9 AllianceStaffingSenarios

SegmentationMatrixQuadrant

ManagementStrategy

PlanningtheWork WorkingthePlanAnalysisandRefinement

Investing Partialresponsibilityoffunctionalmanager

Partialresponsibilityoffunctionalmanager

AlliancespecialistQ1InvestingResources

EliminatingResourceSink

Alliancespecialist Alliancespecialist Alliancespecialist

Q2RelationshipComplexity

Maintenanceorreducingcomplexity,ifpossible

Alliancespecialist Alliancespecialist Alliancespecialist

Maintenance Partialresponsibilityoffunctionalmanageroralliancespecialist,dependingonscope

Partialresponsibilityoffunctionalmanageroralliancespecialist,dependingonscope

Partialresponsibilityoffunctionalmanageroralliancespecialist,dependingonscope

Q3LeveragingResources

ExpandingValue Alliancespecialist Partialresponsibilityoffunctionalmanageroralliancespecialist,dependingonscope

Alliancespecialist

Q4RelationshipClarity

Maintenance(iflookingtoexpandvalue,seeQ1investingstrategy)




Alignment must exist between the alliance portfolio and the capability

to ensure that all collaborations are neither under- nor over-managed and that resources are

appropriately used to achieve desired outcomes.


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EvaluatingAllianceManagement’sContributiontoFinancialValueEvery new professional discipline has a challenge in describing itsvalue.Itmustgainbuy‐infromestablishedinterestsandprovethatitisworthyofresourceallocationtodoitsjobandreceiveremunerationfordoingitsjob.Fifteenyearsago,CIOswerethoughtofasthepeoplewhomadecomputerswork.Now,asinformationtechnologyhasbecomeanessential component of organizational infrastructure, they are seen asstrategicleaders.Alliancemanagementspecialistsmustfollowthispathas alliances and collaborative relationships become integralcomponentsoforganizationstrategy.More than a decade ago, commenting upon the impact of technicaladvancesandglobalization,managementsagePeterDruckerstatedthe“thecorporationasweknowitwillsoonceasetoexist,notlegallyandfinancially, but structurally and economically” (Interview with JamesDaly, August 22, 2000, Business 2.0). Drucker’s words prefaced themarch towards collaborative networks as the predominate form oforganization.Healsostatedthatthegreatestchangewasbeingbroughtaboutbythe“controlofassetsthroughpartnership,notownership.”Hewaswiseenoughtoseethatitwouldtake25yearsforthesechangestocomeabout.It is clear Prof. Drucker’s prophesy is being fulfilled – and that thealliancemanagement profession stands at its forefront. Like CIOs, theprofessionmustdemonstratebothitsstrategicvalueanditscommandof the nuts and bolts of operational effectiveness that come frommanaging and reducing complexity and thus risk, while ensuring theintended value is realized and that opportunities to expand value areseized.Even ifanalliancemanagerhasultimateresponsibility for thesuccessofanalliance,heorsheneverachievesitalone.Somehavesalestargetstomeetandateamtohelpmeetthem.However,meetingsalestargetsdoesnotnecessarilysignifythatanallianceisoperatingeffectivelyandcontributing a reasonable return on the investment of resources. TheReturnonRelationshipmetricisonemeasurethatcanbeusedtoassessallianceperformance,withanythinggreaterthan100%desirable,asissignificantmovementonapathtoward100%ifthesubjectrelationshipstartsasaresourcesink.Another measure is the Positive Impact Score, a metric that assesseshow alliance team members view the contributions of alliancemanagement. It draws on the logic behind the Net Promoter Scoredeveloped by Frederick Reicheld to assess customer loyalty (TheUltimateQuestion,2006).Reicheld foundthataskingcustomers if theywould recommend a company to a friend is a good predictor ofcompanyperformance.We’veadaptedhisapproachtoaskhowlikelyit

The profession must demonstrate both its strategic value and its command of the nuts and bolts of operational

effectiveness that come from managing and reducing complexity and thus risk, while ensuring the

intended value is realized and that opportunities to expand value are seized.


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is that alliance management has contributed to positive outcomesachieved by the alliance team. In thismanner, we aren’t asking teammembers to give all the credit to the alliance manager; rather it is asimple acknowledgement the alliance manager and/or alliancemanagement practices and tools, have made a positive impact thatcontributes to teamoutcomes.This isawayofaccounting for the factthatalliancemanagersoftendeliverfinancialvaluebyensuringthattheresourcesneededfortheultimateoutcomearepresentandreadytobeused. We also use this simple evaluation tool as a way of collectingspecific examples of how alliance managers have helped, how elsestakeholderscouldbenefit(oftentheresponseisthattheydonotknowhow to best utilize their alliance management colleagues) and whatalliancemanagers are currently doing, that in their view, provides novalue.Thelearningisinvaluable.The third component of evaluating and communicating alliancemanagers’ contribution to financial value is to keep track of specificevents.Thenatureofalliancemanagementissuchthatonecan’tforeseemanyoftheopportunitiesthatwillpresentthemselvesaseventsunfold.Keep track of the dollars involved in negotiating for a better grossmargin in a supply price, or limiting your company’s contribution todevelopmentcoststhatgooverbudget.Didyouwincompensationforafailure to get a contracted number of fully trained salespeople in themarketbyacertaindate?Takecreditforit.Wedon’tmeantoimplythatalliancemanagersshouldplayagameof“gotcha”withtheirpartners.Ifalliance partners don’t live up to their commitments, it is the alliancemanager’sjobtoensurethecompanyisn’tharmedexcessively–allthetimebalancingtheneedforfutureproductivecollaboration.Thereinisthe essenceofwhyalliancemanagement is a specializedmanagementdiscipline.Onemustmanagethedelicatebalanceofrisktodayandrisktomorrowtocreatevaluetodayandvaluetomorrow.Figure 10provides some concrete examples of alliancemanagement’simpactthateitherdirectlycontributestofinancialvalueorthatensuresthatanecessaryprecursortofinancialvalueisrealized.

Alliance managers often deliver financial value by ensuring that the resources needed for the ultimate

outcome are present and ready to be used. One must manage the delicate balance of risk today and risk

tomorrow to create value today and value tomorrow.


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Figure10 ExamplesofAllianceManagement’sPositiveImpact

Financial

• Monitorcompanyandpartnerperformanceandidentifyshortcomings.Iftheshortcomingisbythepartner,considerandpossiblynegotiatecompensation.Ifitisbyone’sowncompany,developandimplementriskmitigationstrategy

• Securecostsharingagreementsforsignificantunanticipatedexpenses

• Highlightwhenassumptionsunderlyingthefinancialtermshavechangedandleadtheevaluationandnegotiationofrestructuringorterminationdiscussionsandensuretheappropriateoperationalplanisinplacewithineachpartner

• Increasethespeedwithwhichapartnerisreadytoengagewithcustomers

• Identifyopportunitiestoexpandjointgo‐to‐marketofferings

OperatingEffectiveness

• Orchestratealliancekick‐offmeetings,ensuringcommitteemembershaveacommonunderstandingoftheCollaborationAgreement;establishguidingprinciplesfortheoperationandmanagementoftheCollaboration(includingoperatingnorms);communicateneartermmilestonesandcriticalpathactivities;buildrelationshipsamongcollaborationteammembers

• Leadtherestructuringofgovernancecommitteestostreamlinedecisionmaking

• Gainpartnerparticipationinallianceeffectivenessmeasurementandimprovementprocess

• Obtainneededresourcesforthealliance• Createjointprocessesthataddresstheconcernsofeach

partnerandservetheinterestsofthealliance

RiskMitigation

• Leadtheinternalanalysisofapartner’sproposaltochangerightsorscope

• EnsurepartnersarecompliantwithlawsandregulationsforwhichtheCompanycouldbeheldresponsible

• Guideallianceteammembersinfollowingandapplyingpre‐determinedgovernance

• Monitortheuseofintellectualpropertywithintheallianceandprotectitspedigree

• Identifycompetitiveissuesrelativetothealliancethatemerge


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AllianceManagementataCrossroadsWebeganthispaperbydescribingalliancemanagementasanecessarycapability,theessenceofwhichiscreatingvalueandmanagingriskbyengineering operating effectiveness in alliances. We’ve stated thatcompaniesmustdevelopaconsistent,systematicapproachtomanagingtheir complete portfolio(s) of alliances and collaborative relationshipsand that employing best practices is insufficient when collaborativenetworksorecosystemsaretheorganization.Wehaveputforththatmanagingthecomplexityinagivenallianceandwithin an alliance portfolio, as well as being strategic in how thealliance management capability is designed and developed are howalliance management delivers financial value, either directly or bymaking available precursor forms of value. Financial markets andsenior management rarely recognize the latter, despite knowing thatvaluecreationisaprocessandthatnoteveryplayerisacloser.Alliancemanagers cannot shy away from the essential role they playjustbecausetheymaynotclosethedeal.Quitetheoppositeistrue.Thealliancemanagementprofessionmustengageinapublicitycampaigntolettheirroleandthevaluetheycreatebeknownandrecognized.Whatshouldbeyournextsteps?Ifyouareanallianceprofessional,takeactioninthefollowingways:

• Definetheallianceportfolioorportfolios,createcomplexityandvaluecriteriaandanalyzeyourportfolio

• Usetheanalysistocraftvalue‐creatingalliancemanagementworkplansforallyouralliances

• Lookbackanddocumentwhatyouhavealreadyachievedanddon’tbeafraidtoletothersknowaboutit

If you are an executive, working to build your company’s alliancemanagement and collaborative capability, or if you are leading thealliancemanagementfunctioninacompanywhoseportfoliohasgrownrapidly:

• Assessyourrelationshipsandidentifytherisksandpotentialvalue.

• Proactivelyconsiderhowyouravailablealliancemanagementresourcesareallocated.Anointsomeonewiththespecificresponsibilityformanagingeachrelationship,focusingongovernance,stakeholderalignmentandvaluecreation

• Considertheconsistencyofyouralliancemanagementpoliciesandprocesses,aswellastheiradaptabilitytonewrelationships

Being an alliance manager is one of the most strategic

and essential jobs in any organization today. It must be acknowledged that the profession is at a delicate

point in its development – what we’ve coined a crossroads. Best practices aren’t sufficient to sustain a

profession. An acknowledged alliance management discipline – practiced in organizations,

taught in business schools, and respected as a career choice – is essential.


27

Finally, if you are a part‐time alliance manager, trying to handle thecollaborationaswellastheworkofthecollaboration:

• Connectwiththealliancemanagementprofessionalsinyourcompanyforguidance.Iftherearen’tany,reachoutforsupportthroughtheAssociationofStrategicAllianceProfessionalsor(shamelessself‐promotionalert)callTheRhythmofBusiness

• Analyzeyourallianceusingthecomplexity/valueprofile

• Buildamanagementplanfocusingwithalaseronimprovingoperatingeffectivenessbyreducingthecostoftime

Beinganalliancemanagerisoneofthemoststrategicandessentialjobsinanyorganizationtoday.Itmustbeacknowledgedthattheprofessionis at a delicate point in its development – what we’ve coined acrossroads. Best practices aren’t sufficient to sustain a profession. Anacknowledged alliance management discipline – practiced inorganizations, taught in business schools, and respected as a careerchoice – is essential. It is up to those of us who are practicing it,teachingit,anddevelopingittoensurethatitisrecognizedassuchandflourishes.


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AboutTheRhythmofBusinessThe Rhythm of Business specializes in collaborative business – theorganizations, businessmodels,management, andways ofworking toinnovate and grow through collaboration. For more than 25 years,principals of the firm have built collaborative business models,developedandoperatedalliancesandsuppliernetworks,andconsultedwithin both corporate and civic sectors on building and usingcollaborativerelationshipstoachievestrategicandfinancialobjectives.Engagements include designing and implementing an alliancemanagementcapability,evaluatingindividualalliancesandtheallianceportfolio, intervening in troubled situations, and working with goodcollaborationstobecomegreatcollaborations.Webuildandcustomizelearning programs for alliance managers, team members, andexecutives. Through comprehensive management frameworks, skilldevelopment, and measurement and analysis tools, the firm enablesindividuals and organizations to innovate and grow throughcollaboration.Co‐foundersJeffreyShuman,PhDandJaniceTwomblyhaveco‐authorednumerous books, articles, and white papers and regularly speak at avariety of venues around theworld on the ongoing transformation oforganization structures to collaborative networks. They hold theCertified Strategic Alliance Professional (CSAP) designation conferredby the Association of Strategic Alliance Professionals. Theirmethodologies inform Shuman’s popular MBA courses on ManagingCollaborative Relationships and Entrepreneurial Thinking at BentleyUniversitywhereheisprofessorofmanagement.

The Rhythm of Business, Inc. 313 Washington Street Newton, MA 02458 USA +1 617.965.4777 [email protected] www.rhythmofbusiness.com

© 2011 The Rhythm of Business, Inc.

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