Thursday, August 22, 2013

Do you have "the right" alliance portfolio?

As you can see, the latest post on this platform was a while ago. This is because I was working on a book called "Network Advantage: How to Unlock Value from Your Alliances and Partnerships" which is due to come out in December 2013 (or maybe January 2014).  This is a joint work with Tim Rowley and Henrich Greve. The publisher is Wiley and we wish them well in converting our ideas into a tangible BOOK! 

The idea behind this book is to translate what we (as researchers) know about alliances and partnerships into the language that business executives can understand. Since "knowledge is power" we hope that thoughtful executives, including entrepreneurs, can use our ideas to build better alliances and partnerships. We extensively taught ideas and frameworks from this book in the exec ed classrooms while we were writing this book.

Now the book is in the publisher's hands, so I have some free time to write the blog posts.

While we were working on the book, Harvard Business Review published an article which is based on one of our ideas. The idea is that all of the firm's alliances should be managed as a portfolio of relationships. Most firms think of their alliances as one to one deal: a company forms an alliance with partner A, then an alliance with a partner B, then an alliance with a partner C without thinking about how these three alliances fit together.

Based on over 40 years of collective research (remember, we are three authors), we argue that the existence or absence of ties between partners of your firm will make a difference what you can use your alliance portfolio for. Your firm might play a role of a hub among your partners if your partners don't work with each other. If this is your portfolio, then you are well positioned to produce radical innovations, but you are unlikely to receive much help from these partners in times of need.

Other companies have portfolios with partners that have alliances with each other. If you are such company, then you are best positioned for incremental innovations – and for getting a whole lot of help in times of crisis.

We collected data on alliance portfolios of two well-known companies: Sony and Samsung. Samsung's alliance portfolio looks something like this. It is a hub and spoke portfolio, where Samsung is a hub and its partners are the spokes:

Sony's portfolio is different. It looks like this:

 Samsung’s alliances allow it to look to the future: From its vantage point at the hub of a network, Samsung can combine insights from diverse partners such as Dreamworks and Korean Telecom that are doing interesting things with 3D technologies but don’t typically work together. Like Apple, which invented the iPhone after gleaning insights from alliances with Motorola and disparate other partners, Samsung is well positioned to forge seemingly unrelated sets of knowledge into a breakthrough product – perhaps something such as the first handheld device for watching 3D movies without special glasses. Its recent Galaxy S4 mobile phone already includes cutting-edge gesture- and eye-tracking features.

Sony’s network, by contrast, seems more focused on the here-and-now. Its allies, including Sharp and Toshiba, which manufacture its LCD panels, work with one another and know what the other members of Sony’s network are doing. The group is thus more integrated than Samsung’s. Our research shows that such a network can help each partner make incremental technological improvements, but isn’t likely to yield breakthrough innovations.

Integrated networks can be helpful in another way, though. Highly interconnected partners tend to have a lot of trust in one another and are willing to assist in time of need. For example, after the March 11, 2011, earthquake in Japan, customers and suppliers of microchip maker Renesas Electronics, a firm with an integrated network, sent 2,500 of their own workers to help reconstruct a partially destroyed plant and quickly put it back into operation.

Our article describes several factors that affect whether you need a hub and spoke or an integrated alliance portfolio. If you are interested, you can access the full text of the article by clicking here. The text is free :).