In any industry, the only reason why two partners decide to enter into a relationship is because both find value added in it, explains Mary Yoko Brannen, professor of strategy and management at Insead and the key note speaker at the European Sub-advisory Summit in Paris. The only reason why they would enter into a relationship is because it is the best alternative to a negotiated agreement. The two key assumptions for entering an alliance is that rewards need to be equally valuable for each partner and that both partners put an equal effort in it.
Indeed, the alliances that really work well over time are those where both partners have achieved some value added by being in the partnership. “You can try and reach the goal by going directly, more likely is that there will be progress little by little, and as each partner becomes familiar with the other partner over time,” states professor Brannen.
Carefully assessing selection partner criteria may limit the possibilities of a failure.
These criteria include the partner’s ability to deliver on commitments and being complementarity in terms of skills and contributions, scope and interest. “You don’t want to overshadow each other’s skills completely because you want the relationship to add value,” explains professor Brannen. Compatibility of culture and strategic ambitions, to avoid any risk of encroachment, continuity, credibility and reputation are also key factors, as is commitment between both partners.
While the first period of a relationship is used to develop familiarity, build trust, lean to communicate and clarify expectations, in a successive period it is important to be in a mode of co-specialisation. At that point, partners need to be ready to entrust certain tasks and responsibilities to each other, so they can build momentum toward their shared goal, she says.
Most people spend a lot of time at the preliminary stages of the relationship in negotiating the contract, believes Japanese-born American-educated professor Brannen, and this is really hard not to do in Western countries, where people place a lot more value on content than context. But alliances really should develop in cycles, she says. This echoes the concept of striving for continuous improvement which has been a mantra for the Japanese industry.
In the first cycle, partners determine the initial conditions, the value creation expectations, and understanding what each other wants, the scope and the design. The second cycle is about cooperation, about determining the task that each partner is going to be involved in and the skill-set they bring, and understanding their shared goal. At that stage, it is important to take some measurements and see if the partner is actually proficient in delivering what he is asked for, if he is adaptable, if there is equity in the partnership for both. This leads to evaluate the relationship, and generates further trust and understanding.
In these progressing learning cycles, partners move from procedural trust, where they play by the book and follow the rules to making the relationship work, to building some interpersonal trust, which is a very important condition to strive for, explains professor Brannen.
In so called low-context/high content countries like the US, a lot of confidence is placed in transactions and legalities. Procedural trust is what partners are comfortable with.
Other countries are much more high-context, such as Japan, China, India, Italy, Spain, and often business partners will push for interpersonal trust even before the procedural trust, but both have to be there, she warns.
There are many partnerships that do not work; they can fail from the start or much later on. The warning signs are: growing frustrations, decreasing communications, declining personal satisfaction, lack of socialisation, personnel turnover. Open symptoms are a lot easier to see: you might hear people using culture as a scapegoat - “we can’t do business with these Chinese” - there may be a breakdown of communication, or enduring open conflicts and people quitting.
It is important to detect some of the warning signs before they become open signs, says professor Brannen.
“The reason why it is possible to enter into Death Valley is that partnerships are like an iceberg. When we concentrate on the transactional aspect of the partnership, we are looking just at the visible agreement, and that’s the iceberg on top of the surface, but what we don’t understand are other aspects deeply embedded that can cause all sorts of trauma to the relationship.”
There may be private differences in valuations of the visible agreement, or partners may not have equal commitment in the alliance. At the same time there may be some more invisible advantages and costs that come up just because of the nature of the onus, which were not understood before hand, or were outside the scope of the agreement. “What you would want is to be able to limit the negative suspicions and be able to foster as much as possible the possibility of having positive windfalls. That’s why you want to build flexibility into the onus as much as possible. You can’t manage the alliance or partnership as if they were one side transaction,” explains professor Brannen. “The way to do that is to live the alliances as learning journeys over time; then we are able to gain familiarity, build trust, learn to communicate, clarify expectations and then we will be able to mitigate the losses hidden beneath the iceberg, as well as realise unexpected gains.”
