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When do Alliances Make Sense?

Is the the old adage 'two heads are better than one' actually correct?

29Sep

German telecommunications giant, Siemens and American cultural icon, The Walt Disney Company, embarked on a far from typical strategic alliance in 2005. Although you’re unlikely to see Mickey Mouse parade round Disney World with Siemens written across his shirt, by jove, Siemens gets its fair share of coverage.

Have you ever been on the Spaceship earth attraction at Disney’s Epcot theme park? If you have, you would have noticed that there was an exhibit at the end of the ride showcasing Siemens products. But this is not you simple sponsorship deal, it’s a strategic alliance, one in which Disney use Siemens technology to shape their future. According to Michael Cohen, Vice President, Disney Corporate Alliances; ‘the use of technology to tell stories is critical’.

This is just one example where a strategic alliance between two multinational companies has paid dividends. But more often than not, making that definitive call as to whether a proposed strategic alliance will make sense is something that executives are wary of. There’s so much to consider – will the two cultures merge? Will we be able to handle the growing complexity of coordinating activities?

Conversely, advocates of strategic alliances would point to the advantages leveraged from sharing resources and spreading financial risk. The problem for both parties is that there has been little weight to support either claim. This is mainly because singular companies and alliances often operate in different spaces – this makes it difficult to actually compare key performance indicators.

Thankfully, John Beshears, Assistant Professor at Harvard Business School has delved further into the research, looking in particular at drilling leases in the Gulf of Mexico. Through data, Beshears was able to come to the conclusion that the firms’ operating within strategic alliances were better placed for the future and more likely to be profitable.

Beshears adds; ‘That lesson could be applied more broadly to other industries’ adding that ‘an alliance makes sense where firms have complementary knowledge’. This seems to point to one glaring obvious fact, then, if two companies come together with the same expertise and the same knowledge, then the financial costs of coordinating such a venture are likely to outweigh the competitive advantages brought to bear by the alliance.

It’s also really important for the two companies to have clear objectives before they come together – if neither party has an idea about who’s doing what, then there’s very little chance that it’ll work out. Arguments between parties will cause tension are will make coordination a near on impossible task.

Alliances can and do work a lot of the time – Disney and Siemens are testament to that. Just make sure that your potential partner knows different things and that you’re objectives are agreed upon. If not, then the phrase; ‘two heads are better than one’ may not actually be true.

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