Pitfalls of Partnership

Why some strategic alliances fail to meet expectations.

Title:
Getting the Most from Strategic Partnering: A Tale of Two Alliances
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Authors:
M. Sean Augustine and Cecily D. Cooper

Publisher:
Organizational Dynamics, vol. 38, no. 1

Date Published:
January/March 2009

In 2001, one-third of IBM’s US$88 billion in revenues came from partnerships with firms such as Oracle and SAP that enabled IBM to provide a wider range of technology services to its customers. In fact, the majority of Fortune 500 companies use strategic alliances to help them reach and serve customers. However, according to previous research on alliances, 50 percent fail to meet expectations. To better understand why these relationships deteriorate, the authors of this paper tracked the performance of a large consulting firm and two of its technology partners. They identified four factors that affect partnership success or failure: the level of trust among executives at either company, the ability to overcome competing interests between the firms, the terms of the agreements, and how well the alliance is managed internally and externally. For the consulting company, even though its two technology partners provided nearly identical services, one alliance proved far more profitable. The authors identified the cause of the imbalance as a lack of cooperation among internal teams at the consulting firm, which adversely influenced the negotiation of one of the agreements and subsequently affected the overall performance of the alliance.

Bottom Line:
Most strategic alliances fail to meet expectations. By understanding the potential pitfalls of these arrangements, managers can negotiate stronger alliances that benefit both parties.