Alliance Best Practice Research into Cultural Factors in Strategic Alliance Relationships

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This research presentation was produced from 93 separate alliance manager inputs from organisations such as: PPD, Quintiles, Cognizant, Covance, ICON, and RPS.

The research shows a very high correlation between Cultural Success Factors in alliances and overall success.

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Alliance Best Practice Research into Cultural Factors in Strategic Alliance Relationships

  1. 1. The Impact of Cultural Factors in Strategic Alliance Success Research conducted by Alliance Best Practice Q4 2012 – Q1 2013 for a global Pharmaceutical Company
  2. 2. 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) Page  2
  3. 3. Purpose and Conduct of Benchmark 83.50% correlation between Cultural CSFs and alliance performance  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. Page  3
  4. 4. Cultural Scores v Alliance Performance Cultural CSF scores are an accurate predictor of alliance success 100 90 80 70 60 ABC 50 Partner 40 Performance 30 20 10 0 Partner A Page  4 Partner B Partner C Partner D Partner E Partner F
  5. 5. Common Success Factors : Best Practices There are currently 52 CSFs in 5 categories Commercial Co1 Business Value Proposition (BVP) Technical Strategic T11 Valuation of assets S20 Shared objectives Co2 Due Diligence T12 Partner company market position S21 Relationship Scope Co3 Optimum Legal / Business Structure T13 Host company market position S22 Tactical and strategic risk Co4 Alliance Audit T14 Market fit of proposed solution S23 Risk sharing Co5 Key metrics Co6 Alliance reward system Co7 Commercial cost Co8 Commercial benefit Co9 Process for negotiation Co10 Expected Cost value ratio 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 S24 Exit strategies S25 Senior executive support S26 B2B Strategic alignment S27 Fit with strategic business path S28 Other relationships with same partner Cultural Operational Cu31 Business to business trust O39 Alliance process Cu32 Collaborative corporate mindset Cu33 Collaboration skills O40 Speed of progress O41 Revenue flow O42 Business plan O43 Communication Cu34 Dedicated alliance manager O44 Health check Cu35 Alliance centre of excellence O46 Change mgt. Cu36 Decision making process Cu37 Other cultural issues Cu38 B2B Cultural Alignment O45 Alliance charter O47 Operational metrics O48 Operational alignment O49 Exponential breakthroughs O50 Internal alignment S30 Common vision Page  5 S29 Common strategic ground rules O52 Issue escalation O51 Project plan
  6. 6. 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. Page  6
  7. 7. The Questions asked Responses were received from; 41 people in ABC and 52 from partners CSF Question Cu31 What 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? Cu33 Cu34 Cu35 Cu36 What 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). Is there a dedicated relationship manager role identified to work on this alliance from both sides? Is there a dedicated alliance department in your organisation to whom you can turn for help in this and other alliances? How 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? Cu38 What 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). Page  7
  8. 8. ABC and Partner Cultural Alignment Overall ABC Page  8 BIC = A leading Pharma + CRO alliance
  9. 9. 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 Page  9
  10. 10. 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 Page  10
  11. 11. Partner Scores (Range)Relative Scores 100 BIC 90 80 Ptrs 70 ABC 60 50 40 30 20 10 0 A Page  11 B C D E F G H I J K L M N O P Q R S T
  12. 12. Cu31 Business to business trust The degree to which each organisation trust each other to deliver on its commitments.  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 ).
  13. 13. Cu32 Collaborative corporate mindset The degree to which both organisations understand and practice partnering as an organisational competence.  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 coordination 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).
  14. 14. Cu33 Collaboration skills The degree to which the individuals in both / all parties to the alliance have been trained to use a set of defined 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.
  15. 15. Cu34 Dedicated alliance manager The existence of an individual dedicated to the day to day management of a strategic alliance.  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!”
  16. 16. Cu35 Alliance centre of excellence The existence of an actual or virtual group of people tasked with developing, coaching, and implementing alliance and partnering standards.  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.].
  17. 17. Cu36 Decision making process The process, speed and quality of decision making in both / all partner organisations  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)
  18. 18. Cu37 Other cultural issues The existence of any other cultural aspects of your partner‟s organisation that „gets in the way of doing business‟  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%).
  19. 19. Cu38 Business to business cultural alignment 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.  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
  20. 20. 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
  21. 21. OPTIONAL FURTHER SLIDES Page  21
  22. 22. Partner Range Page  22
  23. 23. VST Methodology Analysis (Example) Stage CSF Score Attention Impact Long  Formal Business Plan 50 Y Short  Alliance Process 75 Y Medium MOUP 0 Y Short Collaboration Skills 50 Y Medium  Decision Making Process 48 Y Medium  Communication 23 Y Long Collaborative negotiation 23 Y Medium  Trust 20 Y Long  Cultural alignment 83 Y Medium  Operational Metrics 50 Y Short  Skills Y  Trust 50  Page  23 Common Vision  Vision  Operational Alignment 50 Y Short
  24. 24. ABC Range Page  24
  25. 25. 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. Page  25
  26. 26. Partner ‘Intimacy’ Spectrum Both partners need to define the topology of the progression and the ‘value of the journey’ Low Intimacy High Intimacy Low Value High Value 0 = None 25 = Low 50 = Median  Commodity Price  Some customization  Interchangeable Product  Flexibility/levels of service  Highly specified deliverables  Special knowledge  Buy from and sell to  Buy from, sell to and sell with (GTM together) 75 = High 100 = Perfection  Customized/ individualized  Shared risks & investment  Process & data integration  Deeply integrated  Solutions oriented  Shared rewards  Greater cost value leverage  Mutually interdependent  Breakthrough market value
  27. 27. Alliance Best Practice Framework The ABPDBTM with 180,000+ entries lies at the heart of the Framework „Tools‟ refer to any documents that help users apply the Framework knowledge. Bench Marks MOUP There are 52 Critical Success Factors (CSFs) identified from examining over 27,000 international strategic alliances. ABPDTM 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. Page  27 Diagnostics Relationship Optimisation By combining the principles established in the CSFs a range of Best Practices (BPs) have been developed
  28. 28. The Alliance Maturity Model AMMTM Company 2 80 70 60 Company 1 50 40 Stage I Stage II Stage III 30 20 • Alliances are opportunistic • Each alliance is a „stand alone‟ venture • Alliances are not part of the company‟s “Standard Operating Procedure” • Separate corporate efforts in different areas of business • Strategic partners developed • Effort begun to adopt “best practices” in alliance management • Planned investment in partnering capability • Wide scale use of full range of alliance capability building • Close integration of sales, marketing, innovation etc 10 C 3 C 31 C 11 W C C 1 C 30 C 17 C 8 B IC C 16 C 18 C 2 C 22 C 4 C 27 C 26 C 12 C 33 C 15 C 13 C 19 C 20 C 25 C 14 C 24 C 23 C 32 C 28 C 9 C 29 C 5 C 34 C 7 C 10 C 6 C 21 0
  29. 29. Individual relationship benchmark example Co1  Generally consistent scoring O49 O48 O47 O46  Client scored lower (usually) than the Partner O50 100 O51 O52 - 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 Co4 90 Co5 Co6 Co7 Co8 80 70 60 O45  Differences were perceived in the following areas; Co2 Co3 Co9 50 O44 Co10 40 O43 T11 30 O42 T12 20 O41 10 T13 O40 0 T14 O39 T15 Cu38 T16 Cu37 T17 Cu36 T18 Cu35 Cu34 Cu33 Cu32 Cu31 T19 S20 S21 S22 S30 S29 S28 S26 S25 S27 S24 S23
  30. 30. Alliance Capability Model (ACMTM) The goal is to establish partnering as an organisational competence Alliance Capability Alliance Performance People Governance Leadership Commercial Technical Resources Processes Strategic Structure Cultural Technology Key Performance Results 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) 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

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