Mastering Alliance Strategy A Comprehensive Guide to Design, Management, and Organization James D. Bamford Benjamin Gomes-Casseres Michael S. Robinson Advance Praise for Mastering Alliance Strategy “Mastering Alliance Strategy is a must-read for anyone in corporate or business unit management who is contemplating a strategic alliance or who wants to improve or exit a current alliance.” —Jon T. Elsasser, senior vice president, corporate development, The Timken Company “I am fascinated! This is one of those rare books delivering valuable learning for both newcomers and experienced alliance pioneers such as Lufthansa, a cobuilder of Star Alliance. The book covers the whole alliance life cycle, providing winning strategies, timeless principles, simple tools, and compelling real-life examples.” —Thomas Sattelberger, executive vice president, product and service, Lufthansa German Airlines “In today’s network organizations, you need to manage without com- mand and control. Written clearly, realistically, and full of insights, this is must reading on both sides of the Pacific.” —Hiroyuki Itami, professor, Hitotsubashi University, Japan “The authors have the deep knowledge and capability to help large cor- porations get alliance strategy and execution right. This book brings all the insights, processes, and tools together in one place, and provides a road map for exceptional implementation.” —Patrick Canavan, senior vice president for global governance, Motorola “Provides a wealth of concrete and practical insight and advice on how to get the best possible results from strategic alliances. It is based on fascinating examples and draws on the work of leading experts on man- aging strategic alliances.” —Yves Doz, professor, INSEAD; coauthor, Alliance Advantage “We can’t do it alone; for most businesses we must have allies. This book brings experience, insight, and wisdom to elevate the management of strategic alliances into a major source of value for all businesses.” —Thomas C. MacAvoy, Darden School, University of Virginia; vice chairman (retired), Corning Inc.; coauthor, Alliance Competence “This is not just another book on business combinations. The concept of ‘alliance strategy’ is invaluable in making us focus on the whole strategy, not just on a single transaction. It is a must-read in today’s world of industry consolidation and global commerce.” —Nita Seelinger, president, DuPont Food Industry Solutions “Unique in depth and breadth of coverage, this book is at once practical and rigorous. It brings together some of the best ideas from the invalu- able Alliance Analyst and will benefit anyone seeking to understand alliance strategy.” —Ranjay Gulati, professor, Kellogg School of Management, Northwestern University “Alliances are now a fact of life for business, an important piece of cur- rent operations as well as future strategy. Ben Gomes-Casseres has long been a knowledgeable guide to the challenging world of partnering, helping many companies get value from their alliances.” —Rosabeth Moss Kanter, professor, Harvard Business School; best-selling author of Evolve!: Succeeding in the Digital Culture of Tomorrow “As in other sectors of the economy, alliances will be crucial to the suc- cess of hospitals too. The authors expertly cover the salient elements for hospital senior leadership to understand, direct, and navigate this relatively new strategy in their organizations.” —William A. Himmelsbach, executive officer, VHA Metro LLC; senior vice president, VHA Inc. “Years of focus on the evolution of business alliances have given the authors deep insight on this powerful global development. Readers will appreciate the growing complexity of these alliances and the value to be gained from their serious study.” —William S. Edgerly, chairman emeritus, State Street Corporation “This book provides an important and very useful perspective on alliance strategy. No other book that I have read provides such a com- prehensive and practical approach to this important topic.” —Lynda Applegate, professor, Harvard Business School “A must-read for any executive responsible for planning, choosing, managing, or implementing a business alliance. Provides invaluable tips, tools, and guidance in a how-to format that will serve as a ready reference for years. Buy this book now . your competitors are not waiting for the paperback!” —Michael J. Bellissimo, director, alliance operations, iPlanet—a Sun|Netscape Alliance Mastering Alliance Strategy Mastering Alliance Strategy A Comprehensive Guide to Design, Management, and Organization James D. Bamford Benjamin Gomes-Casseres Michael S. Robinson Copyright © 2003 by John Wiley & Sons, Inc. All rights reserved. Published by Jossey-Bass A Wiley Imprint 989 Market Street, San Francisco, CA 94103-1741 www.josseybass.com No part of this publication may be reproduced, stored in a retrieval system, or transmitted in any form or by any means, electronic, mechanical, photocopying, recording, scanning, or otherwise, except as permitted under Section 107 or 108 of the 1976 United States Copyright Act, without either the prior written permission of the Publisher, or authorization through payment of the appropriate per-copy fee to the Copyright Clearance Center, Inc., 222 Rosewood Drive, Danvers, MA 01923, 978-750-8400, fax 978-750-4470, or on the web at www.copyright.com. Requests to the Publisher for permission should be addressed to the Permissions Department, John Wiley & Sons, Inc., 111 River Street, Hoboken, NJ 07030, (201) 748-6011, fax (201) 748-6008, e-mail: [email protected]. Jossey-Bass books and products are available through most bookstores. To contact Jossey-Bass directly call our Customer Care Department within the U.S. at 800-956-7739, outside the U.S. at 317-572-3986 or fax 317-572-4002. Jossey-Bass also publishes its books in a variety of electronic formats. Some content that appears in print may not be available in electronic books. Library of Congress Cataloging-in-Publication Data Bamford, James D., 1965– Mastering alliance strategy : a comprehensive guide to design, management, and organization / James D. Bamford, Benjamin Gomes-Casseres, Michael S. Robinson. p. cm. — (The Jossey-Bass business & management series) Includes bibliographical references and index. ISBN 0-7879-6462-X (perm. paper) 1. Strategic alliances (Business) 2. Strategic alliances (Business)—Case studies. I. Gomes-Casseres, Benjamin. II. Robinson, Michael S. III.Title. IV. Series. HD69.S8 B36 2002 658'.044—dc21 2002012105 Printed in the United States of America FIRST EDITION HB Printing 10987654321 The Jossey-Bass Business & Management Series Contents Acknowledgments xiii Introduction: What Is Alliance Strategy? 1 Part One: Designing Alliances Setting Strategy 1. Envisioning Collaboration 19 David Ernst 2. Finding Joint Value 30 Charles Roussel 3. Managing Risk 36 4. Entering Emerging Markets 45 Ashwin Adarkar, Asif Adil, David Ernst, Paresh Vaish 5. Putting Strategy Before Structure 63 Building the Foundation 6. Collaborating with Competitors 77 IX X CONTENTS 7. Crafting the Agreement: Lawyers and Managers 88 David Ernst, Stephen I. Glover, James D. Bamford 8. Negotiating the Deal 107 Part Two: Managing Alliances Working Together 9. Relationship Management 119 Jeff Weiss, Laura J. Visioni 10. Governing Collaboration 134 11. Making Joint Decisions 149 Francine G. Pillemer, Stephen G. Racioppo 12. Managing Without Control 163 Gene Slowinski Leading the Relationship 13. Alliance Staffing 173 14. Roles of the Alliance Manager 186 15. Life as an Alliance Manager 195 Getting Out 16. Why Joint Ventures Die 207 Bruce Kogut 17. Graceful Exit 216 Part Three: Competing in Constellations Managing Networks 18. Constellation Strategy 231 CONTENTS XI 19. Constellation Governance 244 20. Constellation Dynamics 258 Veterans and Pioneers 21. Reaching Every Pocket: Coca-Cola 273 22. Network Effects: Visa International 286 23. From Local to Global: Colliers International 296 24. Leading Wagon Trains: Western Wisdom 311 Part Four: Building an Alliance Capability Sustaining the Effort 25. Growth of Alliance Capabilities 321 James D. Bamford, David Ernst 26. Alliances Across the Corporation: Unisys 334 27. Training for Collaboration 343 Master Builders 28. Grandmasters at the Extremes 355 29. Order Out of Chaos: Lotus Development 364 30. From Art to Science: FedEx 375 31. An Army of Diplomats: Eli Lilly 382 Nelson M. Sims, Roger G. Harrison, Anton Gueth About the Authors 395 Index 401 For Carol Lynn, Elliott, and Alex For Susan and Rachel For Kristine, Emma, Olivia, and Madeline Acknowledgments Every book is the work of a team, but this one is more so than most. Our team consisted not just of us, our contributors, and our publisher but also of a long stream of advisers, experts, and staff that helped shape our ideas, sharpen our judgment, and open our eyes to new perspectives. Their insights are the essence of this book. We owe enormous gratitude to the staff of The Alliance Analyst— a publication that Jim Bamford and Mike Robinson founded and ran. The material for this book simply would not have existed but for the small team of writers, designers, and production staff, including Don Durfee, Cheryl Melchiorre, Marcia Meyerowitz, Jorge Sandrini, Kelly Schwab, and Demetra Taleghani. For eight years (1994–2001), they delivered a publication that had no equal in the field. The spirit of that team lives in this book. At The Alliance Analyst we were also fortunate to have access to hundreds of managers, consultants, academics, and readers—all striving