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Chapter 13

Managing Alliances &

Joint Ventures

The Global Challenge

13-2

Integrating Chemco

Independently run local business

History of profitable growth with little (HRM) involvement from US parent

Despite the relative success, poor integration with other subsidiaries became a serious business problem

Questions:

What can the US parent do to increase its influence in the JV & improve coordination with its affiliates in Asia?

How can HR contribute to changing the culture of the JV organization?

The Global Challenge

13-3

Patterns Of Global Competition

Need for fast market entry

Need for low cost and flexibility

Need to reduce risks and uncertainty

Need to master new capabilities

Globalization of markets

Increasing use of strategic alliances

The Global Challenge

13-4

Why Do Many Alliances Fail?

Strategic issues

Poorly conceived alliance - two losers can’t win!

Lack of shared long-term objectives

Changing parent strategies or priorities

One parent achieves goals, the other is left behind

Operational issues

Poor management of the alliance process

Perceived unfairness - transfer prices, fees, etc.

“Cultural differences” overwhelming

Too slow - fails to deliver in the market

Even well-designed alliances are frequently difficult to manage

The Global Challenge

13-5

Alliance Strategy Context

Competition vs. Collaboration

Low vs. High capability/knowledge creation

Strategic context:

Are the long-term interests of the alliance partners complementary or (potentially) in competition?

Learning context:

Some alliances rely mainly on exploitation of existing capabilities, others generate new capabilities

The Global Challenge

13-6

A Strategy Framework for International Alliances

Low

High

Complementary

Competitive

Opportunities for capability/ knowledge creation

Long-term strategic context

Complementary

Alliance

Learning

Alliance

Competitive

Alliance

Resource Alliance

The Global Challenge

Alliances can be evaluated on two dimensions. The first reflects the competitive context of the alliance. The second dimension reflects the need and opportunities for knowledge-creation.

A It is important to bear in mind that the strategic interests can change over time, and that what was once a collaborative relationship may turn into a fierce competition or conflict. A common experience of many Western firms with their joint ventures in Japan and two decades later in China are often-cited examples in this regard (Reich and Mankin, 1986; Hamel et al., 1989; McGregor, 2005; Hamilton and Zhang, 2008)

B In principle, all alliances have the potential to generate new knowledge—at least partners can learn about each other, and how to work together—the difference is in the intensity of the knowledge-creation process.

13-7

Imperatives of Alliance Strategies

Management process should match strategic position

Alliance capabilities may not transfer well across different types of alliances

Even the best-written contract cannot substitute for strategic leverage

There is no generic alliance strategy Strategic position will most likely shift over time Alliance positioning is not a unilateral decision

Therefore:

The Global Challenge

13-8

Alliance is a Process, Not a Deal

There are no structural solutions to the inevitable tensions

Strategic, organizational, cultural conflicts difficult to separate

Learning organization is the best defence

People Management is a critical component of most successful alliances

The Global Challenge

13-9

HRM Issues in Strategic Alliances

Key contribution : building organizational capability to implement alliance strategy

Aligning HR practices with alliance long-term strategy

Managing loyalty, trust, influence

Promoting organizational learning

Early involvement is essential – starting with partner selection and negotiations

The Global Challenge

13-10

The HR Alliance Strategy Plan: Partner Selection and Negotiations

HRM issues that may influence partner selection Desired competencies that a partner should possess Need for venture HR support from the partner Assessment of HR skills & reputation of potential partners Assessment of the organizational culture of potential partners Exit options

Venture HR issues that must be resolved in negotiation Management philosophy, notably concerning HRM Staffing: sourcing & criteria Performance management & compensation Who will provide what HR service support

The Global Challenge

13-11

The HR Alliance Strategy Plan: Continued

Desired negotiation outcomes & possible bargaining trade-offs. Specific HRM activities: early implementation Negotiation stage Negotiation team selection Negotiation training Start-up stage Staffing decisions Alliance management training

Allocating of responsibility: Corporate responsibility Local management team responsibility Partner responsibility

Measurements to evaluate quality of HR support Recruitment target Training delivered Skill/knowledge transferred

The Global Challenge

13-12

Selecting Partners

Main challenges:

Desired contribution of the partner?

How much will partner HR systems interface within alliance?

Always include the partner’s HR philosophy, policies, practices, and culture when considering the choice of an alliance partner…

The Global Challenge

13-13

Alliance Manager Roles and Responsibilities

Building interpersonal trust Unless there is trust and the right chemistry, the alliance will fail

Monitoring partner contributions Meeting obligations is the most tangible evidence of commitment

Managing information flow & learning Drawing the line between information flow that ensures alliance vitality and unbridled information exchange

Assessing strategic viability/evaluating synergy The strategic needs of the firm change over time; what are the implications for the alliance and the overall relationship

Aligning internal relationships Alliance manager must mobilize support across the organization

The Global Challenge

Table 13-2

13-14

Venture Manager Roles and Responsibilities

Managing the business The venture manager has the operational responsibility for the success of the venture

Representing venture interest The venture manager has to represent without bias the interest of the venture as a business vis-à-vis its parents Aligning outside resources Tapping into resources located outside the venture boundaries Building collaborative culture Irrespective of the competitive context of the alliance, trust inside the venture is an essential ingredient for success Developing venture strategy Successful alliances evolve as any other ongoing business

The Global Challenge

13-15

Selecting Alliance Managers

Credibility inside own company

Good listener and communicator

Ability to take a strategic perspective

Strong people and cross-cultural skills

Sensitivity to anticipate other points of view

High tolerance for ambiguity, frustration, and conflict

High level of integrity – always delivers on promises made

The Global Challenge

13-16

Alliance Negotiations

Factors influencing the alliance HRM framework

Shared control vs. dominant control – who is in charge?

Alliance autonomy or dependence on the parent(s)

Internal HR competence within the alliance

Trust among partners

Key people issues in alliance venture negotiations

Board composition

Senior management appointments

HR policies for the venture: Which direction?

What is important: Equity control vs. operational influence?

The Global Challenge

13-17

HRM issues in Managing the Alliance

Staffing the alliance

Mobility between the parent(s) and the venture

Competence and capability development

Performance management

Rewards and recognition

Building influence inside the alliance

Aligning the social architecture

The Global Challenge

13-18

Staffing Alliances

Monitor high quality of staff; alliances are challenging – no room for second-string players

Manage your partner’s staffing – essential to intervene before a “wrong” decision is made

Find roles for venture champions

Benefits of dedicated management teams – stability

Avoid “one-person” JV operations, especially in competitive alliances

The Global Challenge

“

13-19

Developing Capabilities

Creating a learning environment

Train employees & managers dispatched to alliance

- Cross-cultural training

- Conflict resolution

Enhance collaboration inside the partnership

- Accept diversity: adjust cultural norms

Facilitate integration with the parent firm

Integrate through interaction: business teams/task forces

Training as a good tool for social integration

Attention to long-term career objectives

The Global Challenge

13-21

Defining Performance

Managing performance = the key to having an influence

Sources of tensions in PM

Different objectives may mean different criteria for high/low performance

Different standards for different employee groups

Should managers be evaluated on performance of the JV or the parent?

Creating leverage through performance management

Parent objectives should be reflected in alliance performance targets

Achieving these targets has to be measured

Meeting or failing to meet these targets has to have consequences

The Global Challenge

13-21

Aligning Rewards

No compensation formula or measurement can overcome disagreement about strategy…

Issues to consider:

Tension between external equity with parent

Internal equity for venture staff

Working conditions favoring JV

Incentives for sharing knowledge

The Global Challenge

13-22

Building Influence

Senior management in the parent must stay visibly engaged

Quality of “ambassadors” to alliance is the foundation for building influence

Essential step: Involvement & commitment in career development

Local staff – leveraging opportunities at the parent firm

Dispatched employees - managing dual allegiance

Linkage to performance management: rewards & recognition

The Global Challenge

13-23

Developing a Shared Culture

Conflicting loyalties may be inevitable – within an agreed-on framework, they should be acknowledged and respected

Alliance independence is not a goal in itself – the culture of the venture must fit the business strategy

Successful alliances have cultures that are focused on the market and the customer

The key outcome of shared culture is TRUST – no partnership strategy will succeed without trust at the operating level

The Global Challenge

13-24

The Role of Organizational Learning

All alliances included some learning aspects

The ability to learn through alliances can be a source of competitive advantage

Recognition of learning as a competitive tool

Control = race to learn

Need to preserve learning parity (at least)

Best strategy: Learn your partner's competencies - and expect your partner to do the same

Learning depends on the ability to transfer and integrate tacit knowledge

HRM is critical for alliance learning

The Global Challenge

13-25

Obstacles to Alliance Learning

Low Priority of Alliance Learning

Inappropriate Staffing

Poor Climate for Knowledge Exchange

HRM Foundation for Effective Alliance Learning

The Global Challenge

13-26

Core Principles for Alliance Learning

Build learning into alliance agreement

2. Communicate learning intent inside the parent

3. Assign responsibility for alliance learning

4. Secure early HR involvement

5. Maintain HR influence inside the alliance

6. Staff to learn

7. Support learning-driven careers, including repatriation

8. Stimulate learning through training

9. Reward learning activities

10. Monitor your partner’s learning

The Global Challenge

13-27

Implementing Successful Partnerships

Start with a strategy – not with a partner

Alliances are mostly transitional entities; longevity is a poor measure of success

The myth of alliance governance: Control comes from ownership/contractual rights

Influence comes from contribution to the business

Respect, fairness and collaborative mindset are essential; so is strategic vigilance

WK 8 questions

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