Dispelling the Myths of Alliances

Outlook Special Edition, October 1999

Despite their critical strategic importance, corporate collaborations often are ill-conceived and badly executed. A clearer understanding of the new realities of alliance management will lead to greater success in the future.

Accenture has undertaken a global research initiative into the nature of the alliance phenomenon (See "About the research"). This work shows that alliances already account for anywhere from 6 percent to 15 percent of the market value of the typical company. Many companies hold portfolios that contain hundreds of alliances.

The future looks even more alliance-intensive. Our work shows that 82 percent of executives believe alliances will be a prime vehicle for future growth. Indeed, alliances are expected to account for 16 percent to 25 percent of median company value within five years and, astonishingly, more than 40 percent of market value for almost one-quarter of companies, according to our latest annual survey (See Chart 1). In current dollars, this means that for the advanced economies as a whole, alliances will represent somewhere between $25 trillion and $40 trillion in value within five years.

The increase in the number, scope and value of alliances is largely due to their versatility. They create new, viable options and allow companies to address more effectively the uncertainties and complexities of today's highly competitive global marketplace. Alliances open avenues to customers, giving companies access to valuable information about individual preferences and demand flows. They speed globalization, often enabling companies to move more rapidly and expand more successfully than other growth options allow. And alliances are an essential element of disaggregation: As companies shift from vertical integration to true specialization, alliances are useful for creating links to the value chain.

In short, alliances have emerged as an essential response to the most pressing challenges of contemporary capitalism. As General Electric Chairman Jack Welch has observed, "If you think you can go it alone in today's global economy, you are highly mistaken."

Mixed Performance Yet despite the breakaway success stories–the Pepsi-Lipton joint venture's dominance of the canned iced-tea market, for example, or Hoechst's skillful use of alliances to move from chemicals into life sciences—a sizable number of alliances do not, in fact, reach their full potential. Many high-profile collaborations, moreover, have come undone in recent years. Various data have confirmed the mixed performance of alliances (See Chart 2). According to our research, some 39 percent of alliances were considered unequivocal successes by the executives surveyed.

Fully 30 percent were considered outright failures, however, and the remainder were seen as limping along in some suspended state of underperformance.

We have also found that alliances have an uneven record in improving shareholder value. Our analysis of nearly 2,000 alliances formed over a four-year period shows that alliances impact share price; the 15 most active value-creators in our study increased shareholder value by $72 billion, but the 15 most active value-destroyers decreased the market capitalization by $43 billion.

Given the critical contribution of alliances, how can companies improve this rather modest overall success rate? More fundamentally, where do alliances go wrong? Not surprisingly, there is no single answer to either question. The executives we interviewed cited hundreds of explanations for alliance malaise and failure: Trust broke down. Strategies changed. Champions moved on. Value did not materialize. Cultures did not mesh. Systems were not integrated. The list goes on.

Although these explanations are valid, they are, in fact, symptomatic of problems far more profound. Our work shows that many companies are influenced by a number of destructive myths—misunderstandings about the true nature of alliances and how they should be managed. We have identified five fundamental alliance myths that undermine promising collaborations.

The first myth weakens the very strategy and design of alliances. The remainder relate to alliance execution: integration, governance, internal capabilities and performance measures. The future success of alliances depends on dispelling these myths that have become associated with corporate collaboration and developing a new set of alliance-management practices based on hard-core reality.

About the Research
Accenture has undertaken a global research initiative to gain a better understanding of alliances. This work was launched in 1996 and has involved companies from North America, Europe and Asia across a number of industries.

The research is built on four pillars. The first is cross-industry surveys: During 1998 and 1999, we conducted two detailed alliance surveys and received a total of 323 responses from senior executives. The data have allowed us to understand the broad trends, patterns and success rates of alliances. The second research pillar is interviews: Discussions with more than 400 senior executives from various industries have helped us to identify the most pressing organizational issues and emerging solutions.

The third pillar is roundtables: Eleven daylong executive forums in seven different industries provided a mechanism for us to test and refine our hypotheses. The final pillar is academic research: Through an analysis of work done by professors Tarun Khanna of Harvard Business School and Bharat Anand of Yale School of Management, we have been able to develop a tool to demonstrate the effect of alliance announcements on company share price (see Performance Measurement, "Linking performance to share price").

Accenture plans to continue this multi-pillar approach to understanding the nature of alliances. A distinguishing feature will remain our ongoing dialogue with leading industry practitioners. (Back to Story)

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