May 29, 2001

THE BridgeNews FORUM: An analytic look at a contemporary issue.

OPINION: Relationship Lessons From The Ford-Firestone Breakup

* To An Outside Observer, It Looked As If The Ford-Firestone Relationship Was On Autopilot, Relying On Fond Memories

By Benjamin Gomes-Casseres of Brandeis University

WALTHAM,Mass.--Firestone's dramatically that Firestone sees no need bumpy. breakup with Ford Motor Co. is the most for the relationship it once had with Ford? Strong alliances can weather storms by public corporate divorce in recent This goes to the heart of the matter. relying on a combination of strong memory. But it is far from unique. The fundamental economic reasons for business fundamentals and effective Corporate alliances break up all the the alliance no longer exist. Rival tire relationship management. Cases in point time--depending on what study you makers stand ready to supply tires that are are the alliances between Dow Chemical believe, anywhere from one-third to two- arguably as good as Firestone's. From and Corning Glass, between Northwest thirds of alliances end in dissolution of Ford's point of view, a special relationship and KLM, between Xerox and Fuji Film some sort. with Firestone would seem to yield little and even between Microsoft and Intel. The dirty laundry is seldom as much added value. Each has encountered its share of on display as in the Ford- Firestone spat, From Firestone's point of view, its tires marital problems, some more public than but the reasons behind the break-ups are perform well on numerous other vehicles, others, but each has overcome them. In often the same. A peek inside the so why continue a close tie with the one every case, a strong fundamental tie and firestorm may instruct on how to avoid vehicle on which they happen to fail? For conscious management of the business costly alliance divorces. whatever reason, the specific combination relationship has helped, even when trust "Business relationships, like personal of Explorer-plus-Firestone seems to in its simpler, emotional form appeared to ones, are built upon trust and mutual subtract, not add, value to both brands. have eroded. respect," wrote Bridgestone-Firestone At the dawn of the automobile age, Luckily, high divorce rates in personal chief executive John Lampe in his public things may have been different. The Ford- marriages don't keep people from hitching "Dear John" letter to Ford chief executive Firestone marriage may have made sense up and having children. The "instability" Jacques Nasser. then. Today, both tires and cars are of alliances likewise should not keep What does that mean? Business folks mature and fairly standardized products; companies from tying up and creating are quick to cite "trust"--or the lack better to give consumers the option of joint value. thereof--in alliance failures. Analysts and assembling their own system. But as in good marriages, companies researchers have had a much tougher time A corporate marriage is simply not should be prepared to manage their laying their hands on this elusive variable. needed. Volume discounts on a relationship flexibly and openly. Every The best research now suggests that standardized product are simply not alliance at its root is just that- -a trust in alliances is not at all like trust in enough to justify such a marriage. No commitment to manage an open-ended personal relationships, no matter how wonder that at the first sign of trouble the relationship. It is never a "done deal," as catchy the comparison might sound. partners got out. the demise of Ford and Firestone's 100- Unlike personal trust in a real How could other alliances avoid messy year affair shows. marriage, organizational trust in corporate outcomes such as this one? First, relationships cannot rest on emotions, but recognize that alliances evolve and must BENJAMIN GOMES-CASSERES is must rely on careful alignment of business be deepened or loosened as the underlying a professor at Brandeis University's interests and on the governance of the economic reasons for cooperation change. Graduate School of International alliance. Keeping alive an alliance that has Economics and Finance and author of Lampe acknowledges as much when outlived its use is just as much a recipe for "The Alliance Revolution: The New he explains "we must look to the future failure as ignoring the needs of a critical Shape of Business Rivalry" (Harvard and the best interests of our company, our relationship. Press, 1996). His views are not employees and our other customers." In Second, when the relationship is necessarily those of BridgeNews. other words, regardless of our 100 years indeed critical to business success, then together and the (real) marriages among nurture it as if it were a new love; never OPINION ARTICLES and letters to the our founding families, shareholder and take it for granted. editor are welcome. Send submissions to stakeholder interests must rule. To an outside observer, it looked as if Sally Heinemann, editorial director, Of course, Wall Street would expect the Ford-Firestone relationship was on BridgeNews, 3 World Financial Center, nothing less. To let personal and autopilot, relying on fond memories and 200 Vesey St., 28th Floor, New York, emotional ties guide business decisions minimal communication. That is not N.Y. 10281-1009. You may also call would smack of nepotism. enough in even the best of alliances, (212) 372-7510, fax (212) 372-2707 or But have those interests changed so especially when the flight becomes send e-mail to [email protected].