Managing Collaboration

Collaborations can also be used as an opportunity to learn new market and technological competencies in other words to internalize partner’s know-how.

Collaboration is an inherently risky activity and less than half achieve their goals. A study of almost 900 joint ventures found that only 45% were mutually agreed to have been successful by all partners. Other studies confirm that the success rate is less than 50%.

It is difficult to assess the success of a collaborative venture, and in particular termination of a partnership does not necessarily indicate failure if the objectives have been met. For example, around half off all alliances are terminated within seven years, but in some cases this is because the partners have subsequently merged. It is common for a collaborative arrangement to evolve over time and objectives  may change. For `example, a licensing agreement may evolve into a joint venture.

An alliance is likely to have a number of different objectives and outcomes may be planned or unplanned. Therefore any measure of success must be multidimensional and dynamic in order to capture the different objectives as they evolve over time.

Firms have different expectations of alliances and evaluation of success. Those firms which view product development collaboration as discrete events with specific aims and objectives are more likely to evaluate the success of the relationship in terms of the project cost and time and ultimate product performance. However, a small proportion of firms view collaboration as an opportunity to learn new skills and knowledge and to develop longer term relationships. In such cases measures of success need to be broader. If learning is a major goal, it is necessary for partners to have state of the art skills and capabilities but an even balance of strength is also important. The more equal the partners, the more likely an alliance will be successful. Both partners must be strong financially and in the technological product or market contribution they make to the venture. A study of international alliances found that two-thirds  of the alliances between equally matched partners were successful but where there was a significant  imbalance of power almost 60% of alliances failed. Consequently in the case of a formal joint venture equal ownership is the most successful structure, 50-50 ownership being twice as likely to succeed as other ownership structures. This appears to be because such a structure demands continuous consultation and communication between partners, which helps anticipate and resolve potential conflicts. A study of Anglo-Japanese ventures identified three sources of strategic conflict between parent firms: product strategy; market strategy; and pricing policy.

In essence parents with complementary resources almost inevitably have different long term strategic objectives. Too many joint ventures are established  to bridge  gaps  in short term resources rather than for long term strategic fit.

This suggests that firms must learn to design alliances with other firms, rather than pursue ad hoc relationships. By design I do not mean the legal and financial details of the agreement, but rather the need to select a partner who can contribute to what is needed, and needs what is offered, of which there is sufficient prior knowledge or experience to encourage trust and communication, to allow areas of potential conflict such as overlapping products or markets to be designed out. Partners must specify mutual expectations of respective contributions and benefits. They should agree on a business plan, including contingencies for possible dissolution but allow sufficient flexibility for the goals and structure of the alliance to evolve. It is important that partners communicate on a routine basis, so that any problems are shared. Without such explicit design, collaboration may make product development more costly, complex and difficult to control. Thus, whilst the failure of an alliance is most likely to be the result of strategic divergence the success of a collaboration depends to a large extent on what can be described as operational and people related factors, rather than strategic factors such as technological market or product fit. The most important operational factors are agreement on clearly stated aims and responsibilities, and the most important people factors are high level of commitment, communication and trust. A survey of German  firms gives us a better idea of the relative importance of these different  factors.  The study found that firms take people-related, economic and technological factors into consideration, but that these three groups of variables are largely independent of each other.

However, managers often put greater effort into the harder technical and operational issues, than the softer but more important people issues and focus more on deal making to form alliances.