Sound judgment and successful partnerships

In their study, Gunno Park and Jina Kang assessed what factors influence company decision-making on alliance formation: what induces firms to form alliances? They emphasize that alliances can be great ways of complementing internal resources, diversifying risk, and allow companies to tap into new markets. There are, however, two major downsides to it: alliances lead to reduced internal R&D capability, and maintaining relations with multiple partners can be very costly. Park and Kang find that:

• Previous alliance experience induces new alliance formation.
• Success (or failure) of the first alliance they ever undertook and the most recent one, weigh heavily on their decision whether or not to undertake a next alliance.

Their key take-away: always consider new alliances carefully, without basing your judgment on past experiences only. Past success or failure does not guarantee future success or failure. Experience is an incredibly valuable source of value, when you use it to learn and improve business activities. But when it dominates future action and decision-making, experience can turn from friend into foe. What, then, should guide decision-making when it comes to business alliance formation?

The first step is to realize that business alliance formation is a real skill to be built and developed. Alliance building is similar to M&A –mergers and acquisitions. There are a lot of statistics about the rate of success of this type of business development. Most research indicates that M&A activity has an overall success rate of about 50%.  Therefore, M&A is often seen as basically a coin toss and the popular explanation is that most deals look great on paper, but few organizations pay proper attention to how the deal will actually work once all the paperwork is signed. We had access to deeper research, which highlighted that good and bad deals are not equally distributed.  Some companies undertake a lot of M&A and prove very good at it.  Others undertake M&A infrequently and often fail. When seeing M&A —and also alliance building— as a skill that can only be developed through real practice, previous alliance success does have a lot to say about the success of the next one.

Many consultants and business schools stress the importance of diligent post-deal execution of alliance, and integration of acquisitions. This is crucial in cases of very clear cost synergies, however, in cases of entrepreneurial endeavors this can be unnecessary limiting.  In the case of creative business alliances, however, in which the objective of the alliance is to explore together a new uncharted territory, to develop something new, and to innovate, it is impossible to map out exactly what needs to happen over the years of the alliance. In this sense, business alliances are similar to marriage: you need to be convinced of the purpose (why do you want to be together?) and people involved (two parties deeply in love). The rest is all in the future: successful joint ventures often end up very differently from the expectations upfront.  Having tight contractual arrangements at the start might therefore be counterproductive.

It is valuable, however, to have a prenup in place. It is not without reason that most Hollywood marriages have prenuptial agreements in place – these marriages have a very high failure rate with a lot of financial wealth at stake, so it makes sense to be explicit upfront about the arrangements in case of a divorce. Similarly, when the stakes are high in a business alliance it does make sense to be specific about how to settle in case parties decide to part ways.

We are moving to a world where state actors, non-profit institutions and private sector organizations are increasingly collaborating across sector and industry —so don’t just think cross industry, but cross sector to come to new partnerships and creations. Coca-Cola recently teamed up with former-aid worker Simon Berry to found ColaLife. They use Coca-Cola’s global supply chain to distribute medication in medically under-served regions in Africa, producing oral rehydration solutions and convenient medicine kits and partnering up with other multinationals and international health bodies. We call these Neue Kombinationen in reference of Joseph Schumpeter —the opportunity resulting from an alliance between parties with very difficult capabilities, knowledge, and experience. In the business realm, the creative spark between electronic giant Philips and consumer goods company Sara Lee resulted in the coffee brewing system Senseo, while Nike and Apple collaborated on Nike + iPod, creating sport kits and sensors and are now developing new wearable technology lines.

Some creative leaders, too, attribute their success to their inter-cultural upbringing —growing up in two or more worlds. Thinking about intercultural leaders in politics, Barack Obama immediately springs to mind, but few people know that Bill Clinton, too, grew up in between two worlds. Raised in a disadvantaged area in rural —and racially segregated— Arkansas, Clinton’s family sold goods on credit to people of all races. Some say Clinton’s Third Way philosophy of governance was heavily influenced by this background, allowing him to bridge political and socio-economic divides while in office. British-Iraqi architect Zaha Hadid —“the uncrowned queen of contemporary architecture”— is known for her neo-futuristic and hybrid style, which bridges all sorts of architectural styles and takes inspiration from her rich and diverse cultural heritage.

Similarly, creative director Oliver Rousteing was able to revive Balmain’s popularity, bringing a “much needed fresh face” to the French fashion house, blurring all sorts of boundaries between haute couture and ready-to-wear pieces, Baroque embellishments and contemporary street-style, and by taking inspiration from many different cultures. Under Rousteing, an orphan adopted by French parents, Balmain has undergone a transformation from traditional European haute couture fashion house, to a 21st century brand with global identity and presence. In large, this can be attributed to Rousteing’s focus on diversity and inclusivity. The fashion designer has spoken out against the current “ticking off the box culture” in which Western fashion brands employ models from cultural minorities as a form of window dressing. Instead, he is creating a brand that everyone can identify with: fusing and transcending race, culture, or religion. This approach seems to be paying off, reviving Balmain’s popularity in existing European markets, and successfully expanding into new markets around the globe.