Seeing a network of business alliances
All companies sit somewhere in a supply chain. Most have competitors and collaborators. And yet we look at businesses very often in isolation — as if their results depend solely on their own separate efforts.
The principal achievement of the book “Network Advantage: How to Unlock Value From Your Alliances and Partnerships” is to draw attention to the importance of these broader networks to the success or failure of businesses.
With detailed and thoroughly researched case studies, the authors — Henrich Greve and Andrew Shipilov of INSEAD global graduate business school and Timothy Rowley of the Rotman School of Management in Toronto — show how to take a more systematic approach to the portfolio of networks and alliances in which businesses find themselves. The book is published by Jossey-Bass.
The authors define alliances as any “enduring and formalized collaborative relationships between two firms that involve significant exchange of information and resources.” This includes strategic alliances, joint ventures and partnerships.
Also included are “any enduring buyer-supplier, joint manufacturing, R&D and licensing agreements.” All in all, a pretty exhaustive list. It also makes for a lot of intricate spider diagrams.
An alliance network offers three main advantages or characteristics, the authors say: information, co-operation and power.
Just as London flourished under Roman rule at the center of a network of roads and satellite towns, so powerful companies succeed in large part because of the constellation of players that surrounds them.
After studying successfully networked businesses, the authors have come up with the inevitable tool kits and analytical frameworks to help inform the way business leaders navigate their way through their own networks and relationships.
One of the mistakes businesses make, the authors argue, is to think only in terms of one alliance at a time, and not see the whole network that surrounds them. When businesses develop partnerships they tend to spend a lot of time considering how complementary potential partners are and not enough on how compatible they might be.
And sometimes they just have the wrong approach altogether. Consider Sony and Samsung. The Japanese company is famously siloed, with impermeable barriers between business divisions. At Samsung, information flows more freely. This immediately makes the South Korean business more likely to benefit from the many partnerships it has formed. It is more open to new ideas.
While Sony has focused on content alliances, Samsung has formed more partnerships with hardware businesses. Moreover, as the authors explain, the few hardware partners that Sony has are with “higher status” and include companies such as Hitachi, Sharp and Toshiba. As a result, these partners depend less on Sony than Sony depends on them.
By contrast, Samsung’s “hub and spoke” model with more equal status partners gives it greater bargaining power and access to new ideas. In a dynamic market, this approach to alliances has delivered greater value, faster.
The authors have plenty more advice and analysis of what works: try to be the star at the center of your own alliance network, they say: “Don’t let others create an alliance portfolio for you.” And when establishing a new partnership, do not bring in the lawyers too soon, the authors advise, as they undermine goodwill.
They also argue that fruitful partnerships can be formed with competitors, or with partners’ competitors, echoing the old axiom: “Keep your friends close, but your enemies closer.”
Stefan Stern is a frequent contributor to the Financial Times of London, in which this review first appeared.
The writer is a visiting professor at Cass Business School.
