Launching a World-Class Joint Venture by James Bamford, David Ernst, and David G. Fubini
Published by HBR. Reviewed by Matt Kaercher.
A joint-venture can be an excellent avenue for a company to grow its international presence by combining resources, gaining market share, and mitigating risk for both parties. Bamford, Ernst, and Fubini caution business leaders by exposing the pitfalls that might stall a parent company from succeeding with its joint venture in the long term. The key, they explain, is the first 100 days of a joint venture. The actions taken in period must establish a thorough, executable, and “venture capital caliber” business plan.
This business plan should address four critical areas: strategic alignment, governance, economics, and organization. These areas act as a framework for the JV and Parent Company whether the project is a Consolidation, Skills Transfer, Coordination, or New Business JV. The message being that the parent company must take the time to fully communicate and spell out exactly how the JV is to run, what the strategic goals of the JV should be, how the JV is to be held accountable to the Parent, how capital is to be shared and at what point, and how talent is to be managed through the hierarchy of approval/communication.
The article is framed to focus on the role of the Parent company in a JV and represents a consultant view at the prospect of setting up a JV. The authors provide a myriad of JV examples in describing the pitfalls of JV’s, contrasting these with the characteristics of an “ideal” JV, and explaining what should have been done to avoid such mistakes. As a consultant perspective article, the authors fall short in spelling out the most efficient process to deliver these results. It may seem as though the authors leave this process unanswered to allow for further opportunities for consultants. Nonetheless the article is an adequate snapshot for MBA students hoping to learn of a framework for a successful JV.
Given our progression in the MBA program, the first objective of strategic alignment, can be understood with our training in J501. The subject of governance however, is a new topic and important learning goal as demonstrated by our group questions from the Coca-Cola discussion groups. Many concerns were brought up around how decisions and procedures are to be communicated to and from the Parent company and the JV in a global setting. The authors describe how a JV can avoid the pitfalls of Coke (pre-Isdell) and make sure that the message is understood at the global locations, while empowering them to maximize their market potential. The authors describe a “Loose-Tight Strategy” that addresses the degree of involvement and direct dictation that a Parent should have over the JV and international location.
The main areas of tight involvement are Strategy, Performance Management, and Capital Allocation. The areas in which the local JV should have autonomy are Pricing and Operations. These same standards can apply to a multi-national business in the headquarters and subsidiary relationship. Each of the subject matters should have a clear hierarchy of communication and decision making. This creates clear rules for decision-making at the JV level which should eliminate many hours of lost time spent creating proposals to the Parent for approval, all the while identifying which issues need to be brought to the Parent’s attention. This road map for governance must also support the structure established for strategic alignment, economics, and organization.
Overall, this process seems incredibly daunting and as the authors explain, whole positions are created within companies to champion this process. The skill of molding all the moving parts into a long-term effective business plan would be valuable to any company. Combining these skills with an international background would be an invaluable skill set for all multi-national companies. I hope to learn more about this process and gain insight to these skills as the course progresses.