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What Is the Difference between Alliance and Agreement

The agreement between Starbucks and Barnes & Noble is a classic example of a strategic alliance. Starbucks makes the coffee. Barnes & Noble keeps the books. Both companies do what they do best, while sharing the costs of space for the benefit of both companies. Schering-Plough is not alone. In a recent study of 93 companies from a cross-section of industries, we found that when partners invest time in advance to jointly define the desired relationship, Allianz generates significantly higher value than when they focus solely on business objectives, contractual terms and formal governance structures. One of the effects of forming a strategic alliance may be that each of the companies can achieve organic growth faster than if it had acted alone. If a partner authorized to act on behalf of the Company carries out business transactions, the other partners are related to the company. Once an agreement has been reached, the company will proceed with a systematic «alliance relationship launch». This process, which typically takes four to six weeks, includes meetings where partners explore potential challenges of collaboration, examine differences, develop common protocols to deal with these differences, and establish mechanisms for their day-to-day work. Time is spent on how each company makes decisions: What are the approval steps required for different types of decisions? Are there formal review panels that make certain decisions and, if so, how often do they meet? Is the daily decision-making culture consensual or hierarchical? Such conversations are valuable for avoiding frustration and conflict later, but Schering-Plough takes the discussion even further: among other things, the most important decisions that are likely to be made are detailed and who in the alliance team will make them; the persons they should consult; which must be approved separately by the managers of the partner companies; And so on. The resulting clarity has helped speed up decision-making, reduce frustration and improve follow-up once decisions have been made.

Companies have learned the hard way not to enter into an alliance without a detailed business plan and contract. But solid business planning is only half the battle. Staying within a formal plan can mask the critical need to investigate and clarify in advance the nature of the partners` working relationship – not only what they will do, but also how they will interact. Alliances present particular challenges that render traditional management practices irrelevant. Remember: These partnerships require two companies to work together and compete in the same market at the same time. And participants have to navigate through often crazy differences in operating styles. BCBSF also generates qualitative measures of alliance progress through regular surveys completed by each partner`s employees. At the beginning of an alliance, the company and its partner jointly define a behavior that they consider an indication of a good relationship. BcBSF has developed a survey book from which alliance managers of both partners can select questions relevant to their situation. A question aimed at measuring trust and communication asks staff to speak on a scale of 1 to 5: «How often are we surprised to learn of an action taken by our partner that affects us?» In rare cases, however, an alliance produces significant results in the first few months or even in the first year or two. By their very nature, alliances typically require significant investment and effort before a large payment is made.

Faced with reports showing a lack of payment, partners often lose confidence in the company. The attention of the rulers decreases, resources are used elsewhere, and morale declines, which too often leads to the fall of the alliance. Encourage collaboration. When a problem arises (p.B a missed milestone), replace pointing fingers with an unbiased analysis of how both parties have contributed to it and what each party can do to improve it. Example: Leverage differences. Companies join forces to use the different know-how, different markets, customers and suppliers of the partners. Other types of differences (for example. B of opposing cultures) can lead to unpleasant conflicts. Instead of pushing conflicts underground, bring them up and find ways to use your differences to create value. In the late 1990s, two financial services companies formed an alliance to take advantage of technological developments that enable electronic payments.

A few years after the beginning of the alliance, the partners struggled. They had developed an excellent product and international distribution channels. Everyone had deployed a first-class Allianz management team. Companies had spent a lot of time getting to know each other and had invested heavily in defining rules of engagement to control the interactions between them. People on both sides worked well together. In addition, the companies have developed common approaches to managing interactions with Allianz`s target customers. In the words of one senior executive, «We were advised to focus `madly` on our partner and our customers – and that was us.» In a partnership, shareholders are responsible for the corporation`s financial obligations. If the company is in default, shareholders are responsible for these omissions and must reward them, even if it means the sale of their personal property. In the case of an alliance, the partners are not liable for any losses incurred by each other in the course of their individual operations.

This is because the companies in an alliance are independent identities for themselves. Each side was regularly stunned by the behavior of the others, who in turn seemed incompetent, untrustworthy, or downright crazy. For example, Microsoft has often interpreted HP`s consultative approach to the sales process as a lack of enthusiasm for its NT operating system. All the work at the beginning of the Alliance to define common goals and rules of engagement has become less and less relevant. In fact, the mantra of common goals and rules had made it almost impossible to simply acknowledge, let alone discuss, the differences between partners. Similar experiences have led some companies to make the continuous management of internal components a central part of their alliance management process. For example, Aventis, which drew on its own experiences with the adverse effects of inadequate internal alignment, formalized a series of meetings with internal stakeholders – before any joint governance meeting with partners – where internal disagreements were brought to the surface and then brought to the surface without the clumsiness of doing so in front of partners. Allianz`s management team began to focus primarily on damage control.

Even its members began to lose confidence in a company that was once promising. A majority of senior executives at each company said the relationship was not achieving their now unclear – and certainly not mutually accepted – goals and decided to dissolve the alliance. The partners invest financial and personal property in the company, equally or proportionately, in accordance with the terms of their partnership agreement or contract. The assets belong to the partnership, and all cash gains and real estate acquired by the company are also considered property of the company. In alliances, the parties contribute certain assets and finances in accordance with the terms of the alliance. For example, if two companies form an alliance to develop new products, the alliance members could agree to provide the necessary resources for the project. However, these resources are not part of the Alliance. Because alliances involve interdependence between companies that can compete and may also have very different operating styles and cultures, they require more care and manipulation than other business deals, say Hughes and Weiss, management consultants at Vantage Partners. Based on their two decades of working with alliances, the authors have developed five principles that complement traditional alliance management consulting: (1) Focus less on defining the business plan and more on how you and your partner will work together. (2) Develop measures that are linked not only to the objectives of the Alliance, but also to performance in achieving those objectives.

(3) Instead of trying to eliminate differences, use them to create value. (4) Go beyond formal systems and structures to enable and encourage collaborative behavior. .