Preface

Between 2002 and 2011, companies around the world formed close to 42,000 alliances.1 That comes out to about 4,000 per year—a lot of time, energy, and money invested in collaboration. Clearly, executives and entrepreneurs believe that alliances, partnerships, and joint ventures—which we collectively refer to as “alliances”—are important tools for building competitive advantage.

As individual alliances have proliferated, firms in many industries have become connected in large “alliance networks.” These networks are like a system of roads connecting cities. Each city is like a potential alliance partner. In the same way you can get to far-off destinations by going either through selected major cities or minor hamlets, your firm can reach its goals by taking certain roads to reach different alliance partners. The route you pick gives you access to many combinations of new ideas, breakthrough technologies, unique resources, and smart people that may be available only in unexplored, perhaps distant, parts of the network.

Alliance networks come in different configurations. For some industries the network might resemble a dense spider web of highways connecting clusters of cities. In other industries, the network is very fragmented with highways linking many otherwise unconnected cities through one main city hub. The shape of the alliance network matters for innovation and competition in the industry.

Firms have different positions in the alliance network. Some firms are found in dense clusters of companies that all have ties to each other. Other firms exist at the center of a spider web of firms that connect to them but not to each other, others are at the edge of the web, and yet others are isolated. A firm's position in the alliance network matters greatly for its success. And the configuration of your network matters for the competitive future of your firm.

Bridging the Gap between Academics and Executives

We wrote this book as a result of an observation we made while collectively reflecting on our alliance research and our experiences teaching executives: there is a gap between how academics and managers see alliances. Extensive research by academics in management, sociology, and economics illustrates that alliance networks are conduits across which information, power, and cooperation flow. These studies show that firms extract competitive advantage from their positions in alliance networks. However, most managers are unaware of the competitive advantages available in alliance networks and are instead preoccupied with capitalizing on the advantages gained from single alliances. They see the individual roads (alliances) from their perspective, but they don't observe how all of the alliances their companies have formed actually work together (the alliance portfolio). And they certainly don't see the whole map (the alliance network).

This myopic focus on individual roads and not on exploring the broader map prevents countless executives from understanding how they can benefit from alliance networks. Having identified this gap, we want to share our research with managers to help them generate greater returns from collaboration by shifting their perspective from single alliances to the more comprehensive alliance network surrounding their companies. By reading this book you will see how your firm can achieve the network advantage: gaining more information, cooperation, and power from your alliances and your firm's position in the alliance network as compared to your competitors.

Our Perspectives

Collectively, the three of us have spent 40 years doing research on alliances. Together, we've published findings from nearly 30 studies on alliances in leading academic journals. We've interviewed numerous executives and taught hundreds of executive program participants at INSEAD (France/Singapore/Abu Dhabi) and the University of Toronto. Over several decades we've studied alliances in a variety of industries including investment banking, global shipping, steel, and semiconductor manufacturing. We're also familiar with research done by our colleagues who have studied alliances in many other contexts including telecommunications, pharmaceuticals, and information technology. And, as editors of academic journals that publish alliance research, we've also helped shape the evolution of the new knowledge on alliances.

Unfortunately, academics (ourselves included) don't usually do a good job translating what we know about the business world to the executives who operate in that business world and who need this knowledge to drive value. In turn, executives probably never read our journals, and rightly so. Most academic journals are not written for executives. In this book, we seek to do a better job translating and communicating the key insights academics have discovered about alliance networks that can help managers improve alliance success and their competitive advantage.

Increasing Your Network Advantage

This book is intended for managers who are concerned with generating competitive advantage and maximizing the benefits from their alliances. If you are a business executive whose company has alliances with customers, suppliers or competitors, then this book is for you. If you don't have such relationships but are considering forming them in the future, then this book is for you as well. Any executive thinking about how to build network advantage needs to understand the rationale behind his/her alliance portfolio, its position in the overall industry's network, and whether both of these are aligned with the firm's strategy. In this book, we refer to organizations as “firms,” but our advice is valuable for other organizations such as NGOs, hospitals, not-for-profits, or educational institutions. Finally, this book is for entrepreneurs. More than other types of companies, many young and/or small ventures succeed chiefly by accessing resources through alliances. Entrepreneurs lack deep pockets, sit outside established industries and need to do more with less. They have to be highly strategic about alliances, because their competitive advantage is directly related to alliance networks.

We know that many managers are frustrated by their experiences with alliances. Over 50% of alliances fail and these failures erode their companies' competitive advantage. It's common to place blame on the other alliance partners: those who must have had the wrong resources or culture, were not very trustworthy, or were not willing to cooperate fully. Some managers say they were just plain unlucky.

The somewhat myopic mentality of many managers masks a bigger issue. The firm's network advantage does not simply depend on each individual alliance in isolation. The benefits reaped from an individual alliance depend on the other alliances surrounding the firm—its alliances with other partners, its partners' alliances with other partners, and the overall net­work of alliances. So, despite a firm's best efforts to form a cooperative and mutually beneficial alliance, it may still not meet expectations. By understanding how each individual alliance fits into a broader alliance network, managers will reduce the failure rate of their alliances. It might not be bad luck or bad timing that takes you down, but a bad alliance portfolio and a bad position in your alliance network.

The Toolbox

This book is full of tools and concepts based on our own research published in academic journals as well as research done by colleagues we admire. We present an overview of each tool within the book and then collate them in Appendix Two for easy use and reference later on. The tools will help you evaluate whether you have the correct alliance portfolio and whether you have the right position in your industry's alliance network. We can help you understand where competitive advantages lie in your alliance network and how you can change both your portfolio and your network position if you find that they are not right for your strategy. The tools will also help you think through your existing alliances and see whether there are new sources of competitive advantage that you can discover by recombining your existing partners' knowledge, experience, and resources.

We tested and refined these tools in executive education classrooms in Europe, Asia, the Middle East, and North America. We collected many case studies through which we will trans­­late the key academic findings. Some of these cases come from studies published in major academic journals or teaching case libraries, while others were shared with us by our executive program participants.

Benefits For You

By the time you finish reading this book, you may be challenging your assumptions about managing alliances and partnerships. If you're an executive in a firm that has never had a particular alliance strategy, you may have developed a foundation for one. If you're unsure of what your alliance portfolio should look like, you'll see that we've provided the tools to help you design it. If you're stuck in the wrong alliance portfolio, the book will provide you with ideas on how to change it. If you're suffering from lack of partners, you may be surprised to see that there are multiple ways to increase your attractiveness to them. If you run a large organization and think you're too busy to set up specialized operations for managing alliances, we'll show you that it's not that difficult to do.

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