The current business landscape has changed radically in the last decades. As a response to the increased complexity of customer demand, the value creation of organizations is partly taking place in business networks instead of being confined within the organizational boundaries. Firms are thus becoming more dependent on their alliances, but how do you control them? How can you set up a useful network of partners? And how can you reap the benefits?
Monitoring your network can be difficult. An obvious example can find when looking at H&M or Apple, whose suppliers frequently show up in the news because of the horrible labor conditions. Or the mobile adventure Microsoft and LG went on, which didn’t really ended up all that well. Involving others means your not going to be in full control. In some cases this may not be much of a problem, but in others there might be a lot at stake. If done properly the benefits of a well-developed portfolio of alliances can be huge.
Much literature can be found on how to manage alliances and networks. All agree on one thing: managing alliances and networks is complex. It is important to realize what kind of network you are taking part of, and what the company’s goals are. Just randomly partnering up with others is not likely to give you much of a competitive advantage in the market. Determine upfront what it is that you want to achieve and then decide which partners you are going to need. A large number of papers exist taking various properties into account (e.g. Burt, 1992; Granovetter, 1973; Powell, 1990; Uzzi, 1997).
Once you have determined who you need, then you can start looking at how to arrange the network. For example, if you want to set up a network of partners to simply produce a product, you might want to keep close control of every step. But if you are developing a new product and want to build an innovative network around it, you’ll want to use a different approach. Important factors that should be taken into account are the level of trust, number of participants of the network, goal consensus and level of networking competences (Provan & Kenis (2008) haven written an interesting article about this).
Yet, even if you have the theoretically perfect network arranged, it also requires experience to benefit from it. Creating a function in your organization specialized in coping with alliances might be a good idea. This helps to create alliance management capabilities, and retain experiences from previous partnerships. The last thing to remember: even if your organization has developed all the capabilities to take on the most promising partnerships, your still dependent on the other company’s skills.
Sources
- http://www.asymco.com/2011 /02/11/in-memoriam-microsofts-previous-strategic-mobile-partners/
- Burt, R.S. (1992). Structural Holes, Cambridge, Harvard University Press. Chapter 1
- Dyer, D. H., Kale, P. and Singh, H. (2001). How to make strategic alliances work. MIT Sloan Management Review, 42(4), 37-43.
- Granovetter, M. S. (1973). “The Strength of Weak Ties.” American Journal of Sociology 78(6): 1360-1380.
- Powell, W. W. (1990), Neither Market nor Hierarchy: Network Forms of Organization. Research in Organizational Behavior 12:295-336.
- Provan, K. G., and P. N. Kenis. (2008). Modes of Network Governance: Structure, Management, and Effectiveness. Journal of Public Administration Research and Theory 18: 229-252.
- Uzzi, B. (1997). Social Structure and Competition in Interfirm Networks: The Paradox of Embeddedness. Administrative Science Quarterly, Vol. 42, No. 1. pp. 35-67.
