Case StudyDefining the Social Network of aStrategic Alliance

Michael D. Hutt - Edwin R. Stafford - Beth A. Walker - Peter H. Reingen

Paying attention

to personal

relationships

accelerates learn-

ing and increases

the effectiveness

of alliances.

Michael D.Hutt is the Davis

Distinguished Professor of

Marketing at Arizona State

Uoiversity(ASU). Edwin R.

Stafford is an assistant pro-

fessor of marketing at Utah

State University. Beth A.

Walker is an associate pro-

fessor of marketing atASU.

Peter H. Reingen is the Davis

Distinguished Research

Professor of Marketing at

ASU.

Strategic afliancts are assuming an iingly prominent rok- in tlic strategy ofleading firms, large and small. Such coop-erative relationships ean help firms gainnew competencies, conserve resourcesand sliare risks, move more C[Liickly intonew markets, and create attractive optionsfor futLire investments.' Yet, tiespite theirpromise, many alliances fail to meetexpectations because little attention isgiven to nurturing the close working rela-tionsliips and interpersonal connectionsthat unite the partnering organizations.While these personal relationships between"boundary spanning" members, who workclosely together, serve to shape and modi-fy the evolving partnership, economic the-

ories of exchange virtually ignore tlie roleof people and their importance in themanagement of interorganizational rela-tions.^ Surprisingly, "human or people fac-tors appear to have remained unconsideredor. at worst, dismissed" in the allianceresearch tradition.*

C^ommunication and the proactive ex-change of information can strengthencooperative relatitmships in several ways.First, effective collaboration requires con-nections at three levels across partneringorganizations, represented hy continuingcontact among (1) top management todevelop broad goals and monitor progress,il) mitldle managers to develop plans tor

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Hutt • Stafford • Walker • Reingen

52

This case study helps identify the

communication patterns that united

the participants — and the beliefs that

divided them.

joint activities, and (3) operational personnel, whocany out the day-lo-day work of the alliance.'

Second, "trust plays an important (often dominant)roie in successful alliances,"' and communication andinlormation processing are instaimental to buildinglaist between partners.'' We define taist as "a psycho-logical state comprising the intention to accept vul-nerability based upon positive expectations of theintentions or behavior (of a partner)."" A definingcharacteristic of tRisting relationships is open andprompt communication among partnering firms.^I.ikewi.se, frequent interactions, the timely exchangeof information, and accurate feedback on each part-ner's actions will minimize misperceptions andstrengthen cooperation in the alliance.''

Third, communication among boundary-spanningpersonnel produces a shared interpretation of goalsand c(immon agreement on norms, work role.s, ancithe natLire of social relati(jnships,'" In turn, as a strate-gic alliance evolves. "(1) personal relationshipsincreasingly supplement formal role relationships and(2) informal p.sychological contracts increasingly sub-stitute for formal legal contracts.""

We studied a strategic alliance between two FoftinieSUO firms (referred to as Alpha Communitations andOmega Financial Services) that developed a cobrand-ed product for the business market. This case studyprovides the rare opportunity to explore the socialarchitecture of a working alliance and helps identifythe communication jiatterns that unitetl the partici-pants — and the beliefs that di\ ided them. Ratherthan restricting attention to a fe^' key informants, wegathered data from the entire netw^ork of alliance par-ticipants that includes a core team and a cadre ofsenior executi\'es in each of the partnering i'irms. Toour knowledge, this is the first study to pro\ide avi\-id and comprehensive portrait of the intricate webof relationships that forms in a working alliance andto examine the flow of communications within andacross the partnering organizations.

Our study consisted of three pha.ses. First, we con-dLicted in-depth interxiews with eighteen managersdntwn from b<.)th firms to identify the alliance goals,the array of participants involved, and the prominentmilestones and issues that defined the relationship.Second, forty-two managers, identified as the primar\'alliance participants, completed a suivey: this socialnetwork data was iastrumental in uncovering thecommunication and friendship ties that formed thealliance's underlying structure. Third, we conductedpersonal interviews with each of these managers toidentify the specific beliefs that anchored their evalu-ation of three prominent dimensions of the relation-ship: tmst, compatibility, and commitment. We cho.sethese relationship characteristics because each hasbeen positively linked to desirable performance out-comes, such as partner satisfaction with the allianceor the perceived effectivene.ss of the partnership.'-However, our focus was on exploring the meaning ofthese con.staicts to the participants in the Alpha-Omegaalliance using a tine-grained ca.se-study approach.

To begin, we describe the Alpha-Omega alliance andhighlight important milestones in the relationship.Next, we profile the alliance communication networkand identify the pattern of relatit>nships that formedas the alliance evolved. Centering on key features ofthe relationship, we also contrast the di\-ergent beliefsof managers in the partnering firms. Finally, we dis-ctiss the implications for managing strategic alliances.

Dancing ElephantsThe history of any alliance will reveal periods of opti-mism and doubt, cooperation and conflict, and a hostof forces that advance or threaten the future prospectsfor one or both partners. Wliile alliances can takemany forms, our case study centered on a contractualalliance not invcjiving the sharing or exchange ofequity.'* The parties jointly coordinated ongoingactivities and negotiated new decisions. To imder-stand the background and the current state of theAlpha-Omega alliance, we conducted in-depth inter-views with eighteen managers who were centrallyinvolved in forming and implementing the partner-ship. Included in this group were the two seniorexecutives who conceived of the idea to join forces.

The relationship began when an executive vice presi-dent of Omega (an internationally recognized finan-cial services firm) approached the president of Alpha(a premier telecommunications company of compara-

Hutt • StaffgnJ • Walker • Reinger Sloan Management ReviewWintei 2 m

Direct interpersonal contact between

the two senior executives at the

partnering firms created the opportunity

for cooperation.

ble stature) and suggested the two companies targeta "ct>brantled" product al the corporate market — acredit card/calling card. These two executives wereaccjuaintances who had met at an executive round-table and had remained in contact, .so collaborationappeared to be "a natural," as one Alpha niid-le\elmanager put it. The two companies had been work-ing closely together as cu.stomers and suppliers ofeach other for years: .'\lpha contracted with Omegafor billing its telecommunication services, and Omegahandled much of Alpha's financial and travel arrange-ments. Alpha also admini.stered Omega's telecommu-nications and financial data transmissions. Directinterpersonal contact between the two senior execu-tives at the partnering firms thus created the opportu-nity for cooperation, and the established business tiesbetween the two firms further .supported formation ofthe alliance. Such relational ties are often critical toalliance formation."

Omega Financial Senices was interested in a moreformal jwrtnership with Alpha Commimicationsbecause its position in the corp{5rate market waseroding. Despite its prestige. Omega was losing mar-ket share to new, more competitively priced entrants.Including Alpha's telecommunication services with itsown financial ser\'ice offering could help Omegaretain market share. Ironically. Alpha's competitivestrategy was partly responsible for Omega's situation;earlier in the year. Alpha began offering its own finan-cial .services, aimed largely at its own current telecom-munications customers, as a retention device. Alpha'sservices were such a success in the consumer marketthat the company was emerging as a principal playerin financial senices. As a defensive move. Omegacould prevent Alpha from targeting financial servicesby making Alpha a partner. Together. Alpha andOmega could also launch a powerful cobranded prod-uct thai could be attractive to corporate customers.

For Alpha, the prospect of an alliance was also attrac-tive, providing immediate access to the corporatemarket. Although it C(uild use its cnvn financial ser-

vices unit and make an independent move into thecorporate market. Alpha's key business was realtytelecommiinicahons. Senior managers were more con-cerned with developing mechanisms to support thiscore business than with branching out too aggre.ssive-ly into new areas. Alpha's senior managers were al.soconcerned that its financial ser\ices division, head-qLiartered in another .state, was becoming "too inde-pendent" and losing sight of its primar>" mi.ssion ofsupporting the company's telecommunications inter-ests. Hedging on Omega's established reputation viaa cobranded product. Alpha could expand itstelecommunications network usage through increasedcommunications and billing data transmi.ssions. Plus,if Alpha did not embrace Omega's offer, Omegacould pursue the corporate market by allying withone of Alpha's competitors.

Both firms were accustomed to getting

their way" with alliance partners

hecause of their market clout and size;

hut this situation was different.

However, a "clash of corporate egos." as managersfrom both sides described it, plagued the negotiationprocess from the start. Both firms were accustomedto "getting their way" with alliance partners, becauseof their market clout and size; but this situation wasdifferent. The jiartners nicknamed themselves "theDancing Elephants" to depict the careful movementsnece.ssary for the two corporate giants to avoid .step-ping on each other's toes. A mid-level Omega man-ager remarked: "Neither one of us was in a positionto push the other around,"

Since both companies rarely compromised, partner-ship discussions were arduous. At one low point,both sides refused to give in on a particular issue,and one team coldly got up and left. Reflecting onthe experience, one Omega executive commented:"What took the most time in the negotiations wasdeciding "what happens when we divorce?" It tookus almost a year to negotiate — 3 months to cut thedeal and 9 months to protect each other's corporateassets."

The negotiations offered little room for developing aspirit of cooperation, and several new organizational

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members from both sides w-ere brought aboard to im-plement the partnership. Animosities, however, lingered.

Product LaunchThe first major hurdle was integrating the partners"

customer databa.ses. Each firm's cListomer list was a

significant corporate asset, and neither was willing to

openly give the other partner access. Omega feared

that Alpha's own financial services division might tar-

54 get its customers. Managers at Alpha worried that

Omega might lure away its existing customers with

cobranded offerings developed with competing tele-

communication providers. Furthermore, since many

Omega managers involved in alliances with Alpha's

rivals were also a.ssignecl to work with Alpha, Alpha

managers were concerned that confidential informa-

tion might "leak" (even inadvertently) to Alpha's com-

petitors. At one point, Alpha managers even received

promotional pieces at their homes that promoted

Omega products affiliated with Alpha's key competi-

tors. According to one Alpha manager. "People here

were genuinely offended!"

Frequent disputes centered on issues

such as which company name customer

service representatives would use.

Omega was anxious to announce the new allianceand reassert its posititin in the marketplace. Omega'smarketing personnel would not wait for the customerdatabase merger and negotiated a stop-gap "stickercampaign" to expedite the product launch. Smallcoded stickers, which granted access to Alpha's tele-cc)mmunication services, would be mailed to exi.stingOmega corporate customers. These customers wereinstructed to apply the stickers to their Omega mem-bership cards. Alpha complained that the stickerfailed to convey Alpha's status as an eciLial partner,but Omega was excited about the sticker campaignand launched it despite Alpha's reservations. Unfortu-nately, it proved to be a disaster because most cus-tomers confused the stickers with junk mail and inad-vertently threw them away. Tmst eroded as each firmblamed the other.

Adding to the complexity, Alpha and Omega neededto identify mutual customers to supply them with thenew cobranded product. They contracted a third-party

vendor to integrate the cu.stomer databases because itrequired significant time and complex technical devel-opment. The systems crews on both sides were notyet convinced of the alliance's value; it appeared tohe a lot of work for a small set of clients.

After the customer li,sts had been integrated, the com-panies could formally issue new cobranded member-ship cards. But a new conflict .surfaced becau.seOmega refused to allow Alpha's logo to appear onthe front of "its"' membership cards. After severalmonths, they reached a compromise: the new cardswould have an "Alpha side" and an "Omega side."Although Omega was proud of what it touted asmajor concessions on the eard design. Alpha man-agers were never completely satisfied with the out-ctmie, feeling that Alpha's logo was clearly given aninferior display.

First Year of MarriageDuring the first year, several .sensitive issues eruptedconcerning the overall alliance relationship. Frequentdisputes centered on issues such as which companyname cu.stomer service representatives would usewhen answering service calls from joint customers, orwhich company logo would be at the top of the part-ners" letterhead. Another conflict aro.se from Alpha'.ssvidden withdrawal of a promised discount programto promote the cobranded product. Regulations pre-vented Alpha from offering an initially agreed-upontelecommunications discount with the cobrandedproduct, but Omega believed that Alpha should havedone more to offer some value in its place becau.sethe product was far less attractive without the dis-count. Omega's fru.strations were exacerbated whenAlpha also withdrew a large set of customers fromparticipation in the alliance program. Omega man-agers felt that Alpha never gave a reasonable expla-nation for this move, and they were upset that Alphaadvertising for its financial services never mentionedOmega or the cobranded product. Personnel fromboth sides complained that the alliance was under-capitalized at both firms and that the cobranded prod-uct was not given high priority and enough senior-level management attention.

Some of the initial animosities fe.stered at the person-nel level. The negotiation process was moderatedsomewhat by programmec! team-building exercisesinvolving core team members responsible for theday-to-day partnership operaticms. While some man-

Hutt'Stsffanl* Walker* Reingen SlDan Management ReviewWinter 2000

agers thought these exercises were helpful for bridg-ing the working relationship, others were less con-vinced. According to one Omega manager:

"We had a relationship consultant who was more likea marriage counselor laskingl questions like 'How doyou feel?' I don't respond well to that! You go to theseOutward Bound exercises, and they make you tossballs and jump all over the place. I think what makespeople feel more comfortable with each other is goingto dinner and talking about your family and friends.Maybe I'm too rnuch of a cynic, but pulling ropesand walking through boxes? I just don't find it useful!"

A turning point that helped improve rapport betweenAlpha and Omega was a Key West "working vaca-tion" that provided many relaxing .social opportuni-ties. One Alpha manager noted: "It was the first timewe were able to just sit down, relax, and talk aboutwhat we wanted this alliance to be. . , , Now wewere friends, and we had been through a lot. We hadbattle wounds and scars that hatl healed,"

Social meetings eventually fostered friendships andpersonal relationships between Alpha and Omega.Hack in the office, however, the positive effects ofteam building and meeting,s appeared to be short-livetl. The firms did not conduct the.se social eventsregularly and underlying frictions continued.

Omega personnel accu.sed Alpha of being toobureaucratic and not assigning enough personnelwho were able to approve decisions. Omega man-agers described Alpha as being .structured aroundproduct "silos" (strategic husine.ss units) that inhibitedinternal communications. Omega, on the other hand,touted an organization around "customer segments,"with a better integrated internal structure. As comparedto Alpha. Omega assigned higher level personnel tothe alliance and, con.sequently, Omega managerscould more readily make alliance decisions. One oper-ations manager at Omega explained:

"'Basically, there is someone different at Alpha for ever)'little thing you have to do. For example, with our coreteam at Omega, T feel like we have been empoweredto really resolve problems or make decisions. That'snot always the case with Alpha. They always have totake something back to senior management."

Omega managers also complained of Alpha's person-nel turnf)ver; Alpha frequently promoted or trans-

ferred employees to other projects. "They are alwaysin training," charged one mid-level Omega managerabout the Alpha counterparts.

Alliance personnel from both organizations also ac-cused each other of withholding important informa-tion. Omega managers .seemed especially fru.stratedwith Alpha's unwillingness to openly share detailsnecessary to execute the alliance. Omega had desig-nated one knowledgeable manager to be the keycontact for alliance-related communications, whereasAlpha allowed all of its participating managers to dis-cu.ss alliance issues with their Omega counterparts.Thus, the perceived lack f)f openness on Alpha's partmay simply have reflected the inability of junior man-agers to distinguish nonproprietary from proprietaryinformation. Again, a lack of senior executive involve-ment on the Alpha side made the goals and objec-tives of the alliance unclear, and neither partnerseemed to totally trust the other. One Alpha managercalled it 'a cautious trust."

By the end of the fir.st year, the cobranded productgenerated only modest profits; this was particularlydisappointing to Alpha, whose expectatioas for first-year performance were high. Many Omega managersexpressed concern that Alpha's underlying financiala.ssumptions for the product revenLies were inappro-priate. Although Omega managers would have pre-ferred greater profitability in the first year, they hadtheir sights set on building an expanded .set of rela-tionships with Alpha and laimching a host of othereollaborative offerings. Luckily, profitability improvedin the second year.

Relationship Patterns and ThemesAt the time of this study, the alliance was .stabilizingand moving into its second year of operation. Part-nership norms had emerged, and the alliance had be-come an intertwined .set of interpersonal relationshipsamong various levels of managers from the marketing,computer systems, and customer service functions.

The second phase of our research examined the pat-tern of these relationships by collecting data fromforty-two managers from both firms (twenty-twoAlpha managers and twenty Omega managers). Fir.st,these managers identified the alliance personnel withwhom they interacted at their own flrm and the part-nering firm. Second, they evaluated each of thesecontacts on three dimensions: the frequency of

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alliance communications, the importance of tho.secommunications, and the closene.ss of the relation-s h i p fsee F i g u r e I).

The alliance network is composed of core andperipheral participants. Core participants were thosewith strong communication and closene.ss linkages(including friendships) with others in the alliance net-work, indicating their central role in the alliance'sday-to-day operations. These managers were "in the

56 know" about the alliance. Although assigned to thealliance, peripheral participants had w eak communi-cation and friendship ties in the social network.

Alpha managers with strong social ties were predomi-nantly junior and middle managers from marketing,with a few managers representing the computer .sy.s-tems function. In general. Alpha personnel with weaklinkages were either senior managers (*7 representsAlpha's highest-ranking executive in the alliance) orjtmior and middle managers involved in the customer.services function. Thus, the communication andfriendship network within Alpha did not tightly inte-grate its management levels and functions.

Alpha's original project manager, respon.sible for over-seeing alliance operations, was a middle managerfrom marketing (ranked =20). How'ever, during thesecond year. Alpha reassigned many members c f itsmanagement team — including the project manager— to new projects outside the alliance. The secondproject manager was #29. When she was reassigned,*19 became the third project manager. Both *29 and*19 were junior marketing managers.

By contrast. Omega managers with strong communi-cation and friendship ties represented all levels ofOmega's management hierarchy in marketing, .systems,and customer service. Unlike Alpha, two high-rankingOmega executives, a vice president and a marketingdirector (#24 and #26), maintained close communica-tion and friendship linkages with other managers inthe alliance. Thus. Omega's upper management wasmore actively involved in the alliance than Alpha'ssenior management. In fact, Omega's project manager(#26) held a significantly more senior managementposition than her Alpha counterparts (*19. #20, and#29), who were junior or middle-level managers.Similar to Alpha, however. Omega s most senior-levelexecutive assigned to the alliance (- . O) maintainedweak communication and friendship linkages withother managers in the alliance's social network.

Among the ct)re managers, a unique set of boundaiy-.spanning participants emerged. These managers main-tained strong communication and friendship linkageswith other managers both within their own organiza-tion and the partnering firm. With two exceptions, allboundary-spanning participants occupied the lowestmanagement level. The two exceptions, one fromAlpha (#12) and one from Omega (»-39). were middle-level managers. Omega designated manager #39 asthe key contact for communicating all alliance-relatedinformation. In contra.st. Alpha had a large number ofmanagers assuming boundaiy-spanning roles. Allboundaiy spanners were affiliated with marketing.

We gained further insights into the Alpha-Omegaalliance by examining three relationship characteris-tics —• trust, commitment, and compatibility •— andby exploring the meaning of each to the partici-pants." Consistent with a case-study approach, how-ever, our goal was to isolate the meaning that man-agers ascribed to the.se relational dimensions. Somerevealing differences emerged.

Trust, as defined earlier, involves accepting vulnera-bility, on the basis of positive expectations of theintentions or behavior of a partner.'" Relationshipcommitment, another important attribute (.>f a partner-ship, exists when a partner believes that an ongoingrelationship with another firm is .so important that itwarrants maximum effort to maintain it.'' Finally.compatibility reflects complementarity of goals andobjectives of partners, as well as similarity in operat-ing philosophies and corporate CLiltures.'"

Figure 1Social Connections in an Alliance

Strong Linkages across FirmsStrong Linkages w/thin Firms

nu Most-Senior ExecutiveO Project Manager

Hutt • Stafford • Walker • Reingen Sloan Management ReviewWinter 2000

The alliance had been underway for 1 year, so opin-ions had solidified regarding the relationship. In thethird phase of the study, we conducted interviewswith the .same forty-two managers to (1) isolate thespecific beliefs or "themes" that shape their feelingsof trust, commitment, and comjiatibility: and (2) cap-ture any difterenees in perspecii\'e that may havedi\ided the alliance counterparts. In each interview,we t|ueried the executive about the factors that builtand/or eroded tmst. commitment, and compatibility.Working independently, two judges coded the con-tent ot the inteniews, and ten major themes emergedfrom the data (see Figure 2).'" Alpha and Omegamanagers held opposing views of the salient dimen-sions ofthe alliance relationship (see Figure,^).

Contrasting ViewsOverall, Alpha managers held a coastructive view ofthe alliance, w^hereas Omega managers were consid-erably more negati\'e, and many of their negativecomments were infu.setl with bitterne.ss and emotion.While .seldom praising their partner for alliance suc-cesses. Omega shamelessly blamed Alpha for manyof the alliance's shortcomings. Attributions of .self-blame were rare on both sides; Alpha also laiti m<jreblame than jiraise on its partner. However, perhapsbecause the alliance was not as strategic to theirorganization. Alpha managers were much less likelyto assign blame for Eiiissteps in the alliance.

For both alliance partners, lack of trust tarnished thealliance relationship the most. As compared to com-

Figure 2

Themes of an Alliance Relationship

30

20

10

0

-10

-20

rNo!p The Ihougliii .?

numtei ot IhougliK

= Trust

Commitment

Compatibility

im to more Itsar JOO percenl. The pmporlions am based an iiie r^ii.n•gardmg iiust, commirmem and campaitbilily. respecwely

mitment and compatibility, tru.st generated the mostlengthy and lively discussions, indicating its centralplace in the minds and hearts of managers. Negativethoughts about establishing trust outnumbered positiveones, accounting for 54 percent of all negative thoughtsabout the alliance and only 29 percent of the positiveresponses. In contra.st. positive sentiments for com-mitment and compatibility outnumbered negativeones across both firms. However, a more fine-grainedanalysis of each firm's position on the specific alliancethemes highlights Omega's deep discontent aboutcertain aspects of commitment and compatibility.

Trust

Managers' di.scussion of tru.st centered on threethemes: communication, competition, and the integri-ty of team members (see Figure 2). For both partners,integrity of alliance team members (e.g., honesty,opportunistic behavior, underlying motives) repre-.sented a dominant concern of managers and a.ssumedthe large.st role in destroying trust. Fear of "hiddenagendas" and ulterior motives preoccupied managerson both sides. Alpha and Omega accu.sed each otherof opportunism: their needs were routinely super-.seded by the .self-intere.st of their counterpart. Whileboth hrms felt that titist had been damaged, the.source of this deep-seated disdain differed. Omega'sfingerpointing centered specifically on Alpha's sud-den withdrawal of the incentive program to supportthe cobranded card and, more generally, on Alpha'sfailure to give the cobranded card more prominentattention in advertising campaigns. Meanwhile, Alphablamed Omega for "not following through on prom-

Figure 3

Contrasting Views ofthe Alliance Relationship

30

20

10

-10

-20Note The tliougMs Intgl more rhsn lOOpeicsni

The selecwd themes highlight differences across i

Alpha(22 managers)

•Omega(20 inanagersl

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ises." Alpha was also irritated by Omega's intelli-gence-gathering tactics, which often included "fishingfor information" from multiple contacts within Alpha(because Alpha's alliance structure allowed Omegaaccess to many Alpha team members).

Managers also identified communication

and openness as important drivers of trust. Wliile

Alpha participants were generally constructive about

the nature and level of communication among alliance

58 members. Omega was disappointed (see Figure 3).

In fact, Omega frequently blamed Alpha for not com-

municating problems and, in j^eneral, for being too

cautious and careful on all alliance matters. Lacking

insight and confidence on several occasions, it

appeared that Alpha's inexperienced alliance team

withheld even nonproprietary information from higher

level counterparts. Alphas ciecentralized alliance

structure compounded the problem by potentially

involving each junior-level manager in the Alpha-

Omega communication tlows.

Finally, Alpha's and Omega's competitive positions in

the financial services industry clearly provided an

uncomfortable backdrop for launching a cobranded

product in the same industry. Alpha worried that

Omega would leak proprietary information to Alpha's

fiercest competitors, with whom Omega maintained

similar alliance relationships. Likewise, Omega man-

agers feared that Alpha might exploit Omega's com-

petencies to leverage Alpha s own position in the

financial services market. In addition to these obvious

concerns, the competitive relationship also had far-

reaching effects on the social ties among alliance par-

ticipants. The alliance was embeclclccl in a contentious

competitive environment, so perceptions of hidden

agendas, deceit, opportunistic behavior, and carefully

measured communication heightened the tension.

CommitmentThe alliance managers' view of commitment compris-es three themes: senior management involvement,dedication of alliance team members to shared goals,and alliance outcomes (e.g., current results and futureexpansion plans). For both Alpha and Omega, actionsof senior leadership — including willingness to investresources, personnel assignments, and direct hands-on involvement — shaped perceptions of commit-ment to the alliance (see Figure 2). While Alpha man-agers were satisfied with the level of senior commit-ment on both sides of the alliance. Omega's teamwas disheartened by the .seeming lack of commitment

Both Alliance partners viewed

dedication of team members as a

crucial component of commitment.

from Alpha's senior leadership (see Figure 3). Theyblamed their partner for "not committing enoughstaff," for taking too long to replace key players inthe alliance, and for avoiding direct involvement inthe relationship. According to Omega, the excessiveturnover on Alpha's team conveyed signals from theleadership that the alliance was "unimportant." Incontrast, Omega viewed its senior managers as sup-portive ant! involved, praising senior executives fortheir willingness to commit resources wherever nec-essary to ensure the alliance's success. These senti-ments revealed an imbalance in the degree of impor-tance that the partners assigned to the alliance.

The alliance counterparts were similarly divided intheir view of team dedication and its impact on com-mitment (see Figure 3). Both alliance partners vieweddedication of team members to advancing the allianceas a crucial component of commitment. However,while Alpha was satisfied. Omega was sorely disap-pointed with the behavior of Alpha's alliance team.Most notably, they were outraged by Alpha's failureto implement the aggressive marketing plan for thecobrancled product. Across the board. Omega man-agers blamed their Alpha counterparts for "draggingtheir feet on making product enhancements," failingto offer promised customer incentives, and for "pro-viding only the 'bare bones.' " Omega managers the-orized that Alpha was '"holding back" to enhance thevalue of its financial semces product.

Despite the contentious debate SLirrounding seniormanagement involvement and team dedication, bothpartners were generally positive on their views ofalliance performance. They agreed that the alliancewas a success and that success builds commitment.

CompatibilityThe alliance participants focused their discussion ofcompatibility on four dimensions: firm size and sta-tus, goals and values, policies and procedures, andinterperst)nal relationships (see Figure 2). On the sur-face, the partners appeared to be compatible.Although Alpha was somewhat larger than Omega,employees from both shared the same frustrations

Hutt • Stalfard • Walker • Reingen Sloan Managemenl ReviewWinter 2000

If trust in the relationship erodes,

interpersonal honds become strained,

and formal processes rule.

and L'xpL'ricnccs tliat accompanied life in large andsuccessful firms. Across both firms, managers agreedthai the goals and values were aligned and that theLilliance "made sense." Compatible goals, and evensimilarities in size and stature, provide the necessaiycornerstones for a successful alliance. Attentiondirected at the inner workings of the alliance, howe\--er, revealed some bothersome incompatibilities (seeFigure 3). While both firms stumbled over the poli-cies and procedures of their counterpart. Omegafoimd Alpha's bureaucratic structure to be particularlydi.stasteful. They blamed the lack of decision-makingauthority by Alpha's junior-level managers for slowingalliance progress. On the fjther hand. Alpha blamedOmega's aggressive and derogatoiy demeanor fordampening tlie interpersonal relationships amongteam members, resenting "being treated like a \endor."

Implications for Alliance ManagementThe Alpha-Omega case demonstrates that in a strate-gic alliance, interpersonal relationships matter: com-panies must forge strong interpersonal ties to uniteparticipants in their organizations, and they must con-tinue boundary-spanning activities at multiple man-agerial levels as the relationship evolves. "Broad syn-ergies born on paper do not develop in practice untilmany people in both organizations know one anoth-er personally and become willing to exchange tech-nology, refer clients, or participate in joint teams."-"Superimposed over the formal infrastructure of analliance, a weh of interpersonal connections expe-dites communication, conflict resolution, and learn-ing. Interactions that the parties judged to be efficientand equitable .strengthen the bonds among managersand help to increase trust between the firms. Ofcourse, if trust in the relationship erodes, interperson-al bonds become strained, and formal processes mie.Our study suggests several implications for initiatingand managing strategic alliances.

Laying the FoundationAlliance negotiations set the tone for the relationship.Smooth alliance negotiations depend on finding theproper balance between the formal, legal procedures

that establish detailed contractual safeguards for theparties and the informal, interpersonal processes cm-cia! to successfully execute an alliance strategy.Frequently, alliance negotiations represent the firstmeeting of key personnel from the partnering organi-zations. These initial exchanges form the foundationtor the relationship. For the Alpha-Omega alliance,several managers indicated that the difficult and pro-tracted negotiations created hostilities between com-pany representatives that persisted more than 2 yearslater! One key Alpha manager wondered, "How doyou go from being a negotiator having no trust, com-mitment, tjr compatibility to being a partner whoneeds all of those things?"

If negotiations are difficult, alliance architects may betempted to consider the appointment of a new set ofmanagers — free of past conflicts — to execute thealliance. However, this may be a risky course. Byreplacing those managers who have the greatest per-sonal stake in the alliance and the best understandingof the partnering firm's culture and key personnel, avaluable bank of knowledge is lost. Moreover, themomentum and enthusiasm for the partnership maysuffer. Some Alpha managers voiced this concernwhen the firm reassigned several colleagues whowere central to the initial negotiations to new projectsafter signing the cooperative agreement.

Developing Interpersonal TiesLegal documents that establish an alliance and specifythe boundaries in elaborate detail are never completeand exhaustive. Countless ambiguities become evi-dent as middle managers begin to flesh out the spe-cific elements of the alliance plan. To resolve theseissues and move the alliance forward, personal rela-tionships must develop and sLipplement formal rolerelationships. Importantly, these ties provide an alter-native route for resolving ct ntlicts and form the basisof an informal understanding that clarifies the com-mitments made by the parties.

Alliance negotiations should be structured lo promotede\'elopmeni of interpersonal ties. F,xperts suggestthat more effective transactions are likely to evolvewhen managers, rather than lawyers, develop andcontrol the negotiation strategy'.-' Likewise "negotia-tions appear lo go more smoothly when parties frtimdifferent organizations interact with their role counter-parts (e.g., managers with managers or lawyers withlawyers)."-- Interactions between lawyers are largelybased on institutionalized prote.sslonal norms, center

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on a specific activity, and take place over a relativelyshort period of time. Whereas the work of thelawyers culminates in a signed agreement, manager-to-manager relationships formed during negotiationsprovide the social structure to realize alliance goals.

Forming the Alliance TeamFirms must carefully choose team members v 'ho willmatch their counterparts in the partnering organization

60 in organizational rank and job experience. Omega'salliance team, comprised of more senior managers.complained that Alpha lower-level managers lackedthe decision-making authority to take prompt action.They also suggested that appointing these less experi-enced managers to the team initially signaled thatAlpha was less committed to the relationship.

To build social ties among alliance team members,the firms hired a relationship consultant to conducttea in-building sessions, field trips, and an Outwar'dBound experience. Building the social fabric of analliance is essential, because the early communica-tions are intense and the issues are confusing. How-ever, the results of formal teanvbuilding exercises will"wear otT if the participants fail to cultivate relation-ships and strengthen interpersonal ties. As the firmslaunched the alliance strategy, both formal and infor-mal meetings became less and less frequent. More-over, critical interpersonal links between the firmswere broken as the participants changed over time,particularly on the Alpha side. Turncner levied aheavy toll on the alliance because it involved twokey Alpha boundaiy-spanning managers who alsohad strong interpersonal ties with Omega personnel.A decision to reassign personnel thai makes sense inthe confines of an organization can inflict severepenalties and trigger a major setback to an alliance.

Top Management's RoleBeyond establishing joint goals and tietermining howthe alliance fits each firm's total strategy, senior exec-utives define the meaning of the relationship and sig-nal its importance to personnel in the respectivefirms. Top management's involvement in a strategicalliance encompasses much more than merelyappointing an alliance manager or project leader. Foran alliance-based strategy to succeed, an ongoinglevel of backing from top management is recjuired.

Fxecuti\e leadership also assumes a critical role incommunicating the strategic role of the alliance and

in creating an identity for the alliance within theorganization. A senior executive's personal involve-ment galvanizes support for an alliance throughoutthe organization. Moreover, direct ties at the top-management level across partnering firms spawnorganizational coniniitment and more active involve-ment between managers at multiple levels of thehierarchy.

if visible participation by senior executives is lacking,the members of the alliance team may question theimportance of the initiative to their firm and the valueof team membership to their careers. In the Alpha-Omega alliance, the participation of senior executiveswas unbalanced. Omega assigned a greater .strategicimportance to the alliance, and top-tier executiveswere more centrally involved. Preoccupied with otherstrategic priorities. Alpha's senior managers were gen-erally unaw'are of the interfirm tm.st problems that werehampering the alliance. In addition, alliance person-nel at Alpha eagerly sought reassignment to otherpositions when opportunities arose; this high turno\'erslowed decision-making, hampered alliance-strategyexecution, and provided a constant source of tension.

Cultivating RelationshipsTo achieve alliance goals requires a well-integratedcommunication and work-flow network among man-agers within and across firms. Communication andproactive information exchange can be important inbuilding trust in cooperative relationships.-^ Our studysuggests that a regular audit of e\'olving social, work,and communication ties is valuable for managers togauge the health of an alliance and to spot problemareas. At its simplest level, each member of thealliance team can estimate the fret|uency and impor-tance of alliance-related communications with col-leagues — both internally and with the partneringfirm. Identifying managers at critical junctures ofinformation ilows and those who span organizationalboundaries provides a \'aluable social blueprint of thealliance. Further clarity can be achieved in the auditby identifying close cro.s.s-firm relationships.

In any alliance, communication and information Howsare crucial in resolving disagreements, speeding deci-sion making, and achie\'ing a shared understanding ofalliance goals. When reviewing an alliance network,first focus attention on relationship patterns at multiplelevels. Examine connections among operaliufi person-nel who require timely access to information andresources and between the project leaders who estab-

Hutt * Stafford • Walker • Reingen Sloan Management ReviewWinter 2Q0Q

lish the climate tor the alliance (as well as craft thestrategy and manage the execution). As.sess connec-tions among senior iniiiici_^ers who signal the relation-.ship's importance in their respective organizations,lend critical sLipport at key points, and are central todiscLi.ssions of new opportunities for successful col-laboration.

Next, consider potential trouble spots in internal aswell as external communication flows. In our .study, theOmega alliance team used a weekly telephone con-ference to coordinate plans, deal with pre.ssing issues.and keep members informed. As a rule, managers areade|>t at constructing their own personal networksand in recognizing how to improve the structure ofihat network to be more efficient and effective.

Combining these indi\'idiial networks to form a broaderpicture of social relations provides a unique perspec-tive of the relationship. The relationship audit is atool for identifying loo.se connections, key personnelwho are nal part of the central flow, and relationshipties that are a major asset — as well as those thatre([uire special attention. As the alliance relationshipmatures, as the strategy changes, or as key personnelmove on to other assignments, a periodic social net-work audit may reveal the need to re.store balance inthe relationship in order to achieve mutual goals.

In our study. Omega used a centralized approach,channeling communication largely through a desig-nated manager. By contrast. Alpha utilized a decen-tralized approach; alliance team members fielded fre-quent queries from Omega. Often this decentralizedapproach slowed the information flow because manyteam members lacked the experience and authority todi.scern sharable inffirniation and thus requiredapprtn'al from higher-level managers. To Omega, thissignaled a lack of openness and responsiveness fromits partner, so Omega managers queried other Alphateam members to obtain the recjuired information.Alpha viewed this searching for information acrossteam members with suspicion.

In developing an information management policy,alliance team members should openly di.scuss andagree upon the level of confidentiality for differentcategories of information. Ongoing attention to infor-mation management i.ssues is required as an alliancegrows more complex or as new people join. Whendefining informati(.)n boundaries, however, keyalliance personnel must ha\'e the authority and auton-omy to expedite communication and work flowsbetween the firms. An overly re.strietive informationpolicy will damage tru.st, hamper learning, andimpede the development of interpersonal relation-ships across organizations.

61

Managing the Information FlowA firm enters into an alliance to C(.)mbinc its distinc-tive competencies \\ ith those ot a paitner to create acompetitive position that neither could accomplishalone. For success, each must share information andeach must learn from the other. However, sincealliances often bring together partners who are actualor potential rivals, alliance managers carefully man-age the outflow of information and protect the dis-tinctive skills and knowledge that define iheir firm'scompetitive standing. Experts suggest that alliancemanagers "draw the line between an active flow ofinformation that ensures the vitality of the alliimce,and an unregulated, unmonitored. and unbridledexchange of information that can jeo|")ardize the com-petitiveness of partners."-'

Many alliances that appear to have the right strategicingredients fail becau.se they lack the social ingredientsthat define ct)llab{)rative success. The Alpha-Omegaca.se demonstrates that cultivating strong interpersonalties unices managers in the partnering organizations.and continuing boundary-spanning activities at multi-ple managerial levels helps the relationship develop.A web of interpersonal connections pro\ ides theinformation-flow circuits, enhanced learning, and for-mation of strategies. Frequent interactions and thetimely exchange of information across organizationsresolve conflict, build trust, speed decision making,and uncover new possibilities for the partnership. Ourstudy suggests that a regular audit of communicationpatterns and social ties is a valuable tool to create asocial blueprint of a relationship and i.solate the inter-personal connections that make an alliance work.

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