Friends Or Foe: Strategic Alliances in the Noughties

Rivers of knowledge

9th Specials, Health and Law Libraries Conference

26 - 29 August 2001

Title: Friends or foe: strategic alliances in the noughties.

by cindy tschernitz

Tell Me Now, Melbourne, Victoria.

Alliance – Definition

“A strategic alliance is a co-operative arrangement between two or more companies where:

• a common strategy is developed in unison and a win = win attitude is adopted by all parties.
• the relationship is reciprocal, with each partner prepared to share specific strengths with each other
• a pooling of resources for mutual gain.”[1]

“A long term relationship where participants co-operate and willingly modify their business practices to improve joint performance”[2]

“70% of joint ventures have failed to meet partner expectations or have been terminated.” [3]

Introduction

Libraries and Information centres are increasingly being run as businesses within business and as such it is appropriate to examine models that companies use and apply them to our situation. The aim of the paper is to examine the use of alliances in business and apply some of the theoretical frameworks to the Library and Information sector.

This paper will first examine the theory behind alliances and also give some examples of what has worked and what has failed and the reasons behind this. This knowledge will provide the basis of the second half of the paper which will provide some ideas on how we can leverage this theory to pursue alliances or not.

The paper does not set out to provide answers but is intended to be a thought piece for the industry so that we can build Information Centres of excellence for the future. To survive Library and Information Centres have to become the first port of call for key decision makers in organisations. Through alliances gaps can be filled in existing services.

Background

Alliances are like a marriage but with less emotional issues if the relationships breakdown. As with every relationship a new set of norms is created. New relationships bring their own expectations from both parties in terms of accepted behaviours, values and communication styles. Perhaps the two most important aspects to any new relationship is negotiating the “ground rules” of the and making sure that the communications channels are clearly defined and open.

Why look at an alliance?

The major reason is to extend a company’s capabilities. No one company has all the capabilities in-house that it requires to grow or develop businesses. In this time of ever increasing speed of change, it is highly unlikely that companies will be have the time or resources to train internal staff to meet these changes in capability requirements.

There are different types of alliances

• Customer and supplier (Often undertaken in a purchasing or procurement).
• Competitor (Where competitors join forces to become bigger and more cost effective in a particular market)
• Geographic (Companies who want to enter new markets and they form an alliances with a company in that market leveraging off existing knowledge of the market place)
• Sales alliances (Product vendor seeks partnership with a Sales team to sell the product)
• Employees (Profit sharing or employee share ownership)

Business View

Business processes have changed considerably on the last decade, much of it due to the increasing importance of the internet in business to business (B2B) and business to consumer (B2C) transactions. The implications of this change are, businesses are no longer able to operate without interacting with their suppliers, customers, IT vendors or their banks in a traditional manner. Nor do they have all the expertise inhouse needed for all the tasks now required to run most corporations.

David Ernst and Tammy Halevy from McKinsey & Company stated that, “Over the past decade, corporations have transformed themselves from 100 percent owners of their own assets into fuzzy-walled organizations linked with dozens of partners in strategic alliances such as joint ventures, cross-selling agreements, and patent-licensing deals”[4]

They also noted that , 50% of alliances have long term success rate when measured in strategic and financial terms and that they are better received than mergers and acquisitions in fast moving, highly uncertain industries. They are also preferred by companies building new businesses, entering new geographies or accessing new distribution channels. Simple and flexible contractual alliances are better received than complicated equity ventures and multi-partner alliances and consortia are also well received.[5]

These deals are measured by the markets reaction, ie stock price movements to the news of an alliance, mergers, acquisitions, joint venture or sale. The movement is also effected by the type of transactions, expansionist programs are more popular than transformative deals where companies move into new lines of business or sell off business units of a healthy portfolio.

The lessons to be learnt here appear to be that companies should stick to their core business and expand it through alliances rather than through mergers or acquisitions. The market also likes the consortium approach where perhaps the risk is spread amongst multiple players. The alliance model is one which where there is low risk high outcome versus a merger or acquisition which has all the risks associated with permanency and financial outlay by one of the players. Also alliances, joint ventures and partnerships tend to be for specific projects or outcomes and their effectiveness is continually measured against the goals initially set. Mergers and acquisitions are over once the ink has dried on the contracts and then it is time to worry about the associated issues.

Outcomes of an alliance

An alliance is set out to achieve specific goals and objectives of the parties involved. The goals can be as simple as cost saving for both sides or as complex as entering new geographically markets with different alliances in each market. They can be for a specific project only and for a specific length of time. The common denominator is that is and alliance has buy in from all relevant partners.

Success factors of alliances are fairly straightforward and on analysis they are intuitive. The most obvious are clear goals and objectives as already mentioned but for the alliance to go ahead and thrive there needs to be excellent communications between the parties, both formal and informal channels, total trust in each other, a commitment by senior staff to making the alliance work, demonstrated by a commitment in time and money in resourcing the alliance.

Success factors

• Open communication.
• Trust
• Commitment by senior management
• Ability to meet performance objectives
• Clear goals
• Partner compatibility
• Adequate resourcing

The reasons that alliances fail are also intuitive.

Reasons for failure

• Unclear goals and objectives
• Picking the wrong partner
• Not enough commitment by senior management.
• Inadequate resourcing
• Closed communication channels.
• Changing company circumstances.

How to do it.

As with any other business proposition, it is always vital that ‘due diligence’ is undertaken before entering an alliance. This includes;

• Checking the financials, is the business on solid footing?
• Who are the managers and how well do they manage?
• Who are their customers ?
• What are their products and services?
• How will they benefit from an alliance and is their a commitment to this?
• Thoroughly researching the market that the alliance is being created for.
• What does the business want from the alliance?

It would be hard to proceed in any sort of business deal without a detailed examinations of these issues.

When to get out.

Most people realise when things aren’t working, alliances are like any partnership, there are often signs and cracks in the relationship that indicate an incompatibility. Depending on how far down the track in the alliance process the companies are the signs are there. The most basic business indicator after an alliance has been in place for a while, is the lack of profit. There may also be waning interest and lack of commitment to the alliance by one or more parties and a breakdown in communication and with holding of strategic information.

It may also be that the circumstances for which the alliance was set up has changed and alliance is no longer relevant. This could be as the market has changed or the company’s have changed focus. One of the joys of an alliance rather than a merger is that they should be easier to get out of.

Alliances in Library and Information sector.

Historical perspective

A comprehensive literature review found recurring themes with regards to alliances in Library and Information Science. Most alliances were set up in the technical services area by large publicly funded institutions, they took the form of a Bibliographic network, ILL networks or shared catalogues over a number of similar institutions. They tended to be set up as a response to cost cutting and a genuine desire to share resources. Of notable absence was any mention of strategic alliances with external providers of Information services or with other departments within organisations. Some Australian examples are:

• Shared cataloguing - ABN
• Shared purchasing - Technilib
• ILL - Ilanet
• Joint catalogues and resources sharing – CAVAL.

How do we apply lessons learnt by business alliances

The same principles apply to Libraries and Information Centres seeking alliances as to business. They are:

• What do we want to achieve?
• How is this best done
• Who are the best alliance partners
• Are there timeframes?
• Is there adequate resourcing and commitment by senior management.

Before going an examination is needed to see whether the organisations involved have:

• Shared values
• Shared goals
• Equal commitment to the process
• Open communication
• Willingness to work together
• Are bringing something of value to the alliance and are wiling to share information to achieve success.

External alliances with suppliers

From customer to alliance partner

Alliances with suppliers or vendors, eg, business information services, journal consolidation services or systems vendors , generally start off being customer – supplier relationships whereby the supplier has to ‘sell’ each time they see a client. Traditionally these types of alliances have been set up as a cost/time saving measure where a library has shed staff, grown, restructured and the current staff can not meet the demands of the clients or where greater client access is needed.

A formal alliance allows this to mature into an ongoing business relationship where the aim is to provide a service of excellence rather than just meet current needs. It should free up communication channels between the supplier and Library and Information Centre so that the two can work together to provide an organisation with innovative solutions to meet their current and anticipated needs, it creates a bigger knowledge pool for both so that ideas can be workshopped and tested. It is not longer a buyer/seller proposition.

Additionally this sort of alliance should save time, money and add value to services on both sides, as the supplier can concentrate on providing the best service and the Library and Information Centre can concentrate on the most effective delivery of services. These alliance often have a lifespan of 3 to 5 years.

Internal alliances

IT, HR, Training, Records Management

Strategic alliances are not only external but may be internal. These are of particular importance in Library and Information Centres as they can extend capabilities, client reach and change the position of the Library and Information Centres in an organisation. They are as essential to Library and Information Centres gaining a competitive edge as they are to businesses in general.

Some potential internal alliance partners are: Information Technology, Human Resources, Training and Records Management Departments.

A scenario for a strategically alliances with the Library and Information Centre, Information Technology and Training Departments would the creation and maintenance of a Knowledge Management System. Each department has its own capabilities to bring to the project. ie

• IT technical expertise in system design and company platform
• Library and Information Centres expertise in accessing information and populating databases and knowing what is relevant to the organisation.
• Training’s reach within the entire organisation through it’s Induction program.

The factors of success or failure in internal alliances are the same as with external alliances.

• Share goals and values
• Commitment of senior management to the alliance
• Adequate resourcing, both staff and budgets
• Open communication
• Trust

Conclusion

Strategies alliances when properly undertaken are friends not foes! The Library and Information Science community like most small to medium organisations have treated alliances as a foe and have not seen the benefits of working with ‘the enemy’. Often the enemy is working toward the same goal and as such, there are many benefits in developing strategic alliances. Not only do they enhance the capability of an Library and Information Centre but they can also be used as a tool for promotion through people’s perception that the Library and Information Centre is responding to and anticipating the needs of an organisation through its alliances. It can give Library and Information Centres greater exposure to clients it would traditionally not have and can make it the pivotal in an organisations information needs.

Moving forward these alliances will be increasingly important to maintain an Library and Information Centres dominance as the first place that people come to for information. Alliances allow Library and Information Centres to have capabilities that they would not necessarily otherwise have and offer services that could not be offered before. They can make the Library and Information Centre more relevant to the company than ever before.

Bibliography

Blishaar, H. et al “Deals that create value” McKinsey Quarterley 2001, No 1. pp. 65 – 73.

Day, GS. “Advantageous Alliances” Journal of Academy of Marketing Science, Vol 23, No 4, Fall 1995, pp 297 – 300.

Ernst, D. et al “A future for e-alliances” McKinsey Quarterly 2001, No 2.

Ernst, D. & Halevy, T. “When to think alliance” McKinsey Quarterly 2000, No. 4.

Lanser, Ellen G. “The corporate alliance advantage” HealthCare Executive, Vol 15, No. 6, pp 40 – 41.

Harbison, J,. Booz Allen & Hamilton in , Romano, E “In it together” Journal of property management, Vol 64, No. 4, Jul/Aug 2000 pp 39 – 44.

Hutt, M et al “Defining the social network of a strategic alliance” Sloan Management Review Vol 41, No, 2, Winter 2000. Pp 51 – 62.

Romano, Ellen. “In it together” Journal of property management Vol 65 No. 4, Jul/Aug 2000. Pp 38 – 44.

Using Business Alliances as a growth strategy, 1999 - 2001 Office.com

Whipple, JM & Frankel, R. “Strategic alliance success factors” Journal of supply chain management Vol 36 No 3, Summer 2000, pp 21 - 28

[1] John Harbison, Booz Allen & Hamilton in , Romano, E “In it together” Journal of property management, Vol 64, No. 4, Jul/Aug 2000 pp 39 – 44.

[2] Whipple, JM & Frankel, R. “Strategic alliance success factors” Journal of supply chain management Vol 36 No 3, Summer 2000, pp 21 - 28

[3] Day, GS. “Advantageous Alliances” Journal of Academy of Marketing Science, Vol 23, No 4, Fall 1995, pp 297 – 300.

[4] Ernst, D& Halevy, T. “When to think alliance” McKinsey Quarterly, 2000 No. 4.pp 47 – 55.

[5] Ernst, D& Halevy, T. “When to think alliance” McKinsey Quarterly, 2000 No. 4.pp 47 – 55.