Ten Strategic Alliance Management Guidelines

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TEN STRATEGIC ALLIANCE MANAGEMENT GUIDELINESfor Australian education and training institutions

Strategic alliances: the relatively enduring interfirm co-operative arrangements, involving

flows and linkages that utilise resources and/or governance structures from autonomousorganisations, for the joint accomplishment of individual goals linked to the corporate missionof each sponsoring firm. (Parkhe, 1991)

Guidelines summary:

1 Formulate a Winning Strategy

Formulate a unique value proposition for the alliance - a Winning Strategy that draws uponthe distinctive competencies of the partners and can generate a sustainable competitive

advantage in the target market.

2 Ensure Clarity of Objectives

Great clarity is needed in alliance objectives, for both the Australian institution and thestrategic partner, to avoid misalignments. Unclear objectives can lead to goal divergence andconflict between partners much earlier than might otherwise occur.

3 Select a Suitable Strategic Partner

Selecting a strategic partner is a two-way exercise which must be transparent and guided bymutual strategic objectives. Difficulties in aligning the value systems of the partners must berecognised, and consideration given to the decision rights which will be delegated versusagency costs in maintaining the integrity of the alliance and brand reputation.

4 Develop Core Competencies in Collaboration

Collaboration is a learned skill that each partner must have or deliberately acquire if analliance is to flourish. People are needed who have a demonstrable ability to work in adifficult collaborative world.

5 Establish an Effective Governance Structure

An alliance specific governance structure with a clear purpose is needed with explicitdelegations from existing institutional governance structures giving it the freedom to delivertargeted benefits and carry contingent risks to initiate, fund and manage commercially basedoffshore strategic alliances. Managers who can take responsibility for running the alliance

from the perspective of the Australian institution are essential.

6 Actively Manage Cultural Challenges

Cultural challenges vary in complexity depending on the country of origin of the alliancepartner and the target country of alliance operations. Guidance can be sought fromAustralian corporations experienced at doing business in the target market.

7 Protect IP and Brand

The institutions competence to develop intellectual property would not be for sale to thestrategic partner, rather the emphasis should be on the capacity to continuously updateintellectual property. Protecting the brand depends on strong, independent quality assurance,

which cannot be captured by any of the partners delivering the service.

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8 Align Decision Rights to Create and Capture Value

Determining and assigning delegations/decision rights, such as who admits students andwho approves program content, is a critical governance responsibility in strategic alliances.Effective governance determines what decisions are important to the venture, which partnershould make them, and how they are to be made and monitored.

9 Build Core Capabilities in Change Management

Core competencies in the management of change in competitive markets are required forinstitutions to participate effectively in a flexible, adaptable strategic alliance and to captureongoing revenue.

10 Agree an Exit Strategy

As most alliances do not last for extended periods an exit strategy is essential. It is importantto agree in advance on how the alliance will be unwound when, rather than if, it fails.

Any institution that has questions about its capabilities in more than two of the abovecriteria should not proceed with a strategic alliance. Doing so will put their brandname and limited capital base at risk for minimal short-term benefits.

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1 Formulate a Winning Strategy

The first step is to formulate a unique value proposition - a Winning Strategy - for the alliancewhich draws upon the partners distinctive competencies and which can generate asustainable competitive advantage in the target foreign market. Otherwise, a better strategymight be to act opportunistically and either build a program to sell to others or harvest short-

term revenues. A weakly competitive domestic market provides an opportunity for Australianinstitutions to capitalise on the capabilities and/or reputation that they currently have but theymay not be will not be able to sustain these capabilities in the emerging competitive globalmarket. p.53

If the institution has a unique value proposition that has the potential to place it in a strongand distinctive competitive position, then it should consider the other nine criteria listed here.

2 Ensure Clarity of Objectives

Clarity of objectives is needed to avoid poor alignments between partners. There are, forexample, significant differences in how and why an Australian education institution mightoffer teaching programs in Asia compared with developing a relationship with a similar highly

regarded university or vocational institution in the OECD. Such differences need to be clearin alliance objectives. The goals and objectives must be enacted with great clarity, both in themind of the Australian institution and of the offshore strategic partner. Unclear or uncertainobjectives could lead to goal divergence and conflict between alliance partners much earlierthan might otherwise occur.

3 Select a Suitable Strategic Partner

Strategic partner selection is a two-way exercise which must be done in a transparent andopen way to attract the right partner, and be guided by mutual strategic objectives. Partnerselection requires information being available in appropriate places so that organisationssearching for an Australian partner can be attracted by the signposts provided.

In selecting a partner it is critical to recognise difficulties in aligning the value systems of thepartners. It is also vital to consider decision rights that can or must be delegated to the otherpartner versus agency costs in maintaining the integrity of the alliance and brand reputation.For example, it could be challenging to align the values of an Australian publicly ownededucational institution with that of a commercial partner, or of an Australian private sectorprovider with a foreign government-owned organisation as potential partner. Detailed partnerselection actions are well described in the literature and outlined in DESTs StrategicAlliances Literature Review(see, for example, the formationstage of the strategic alliancelifecycle, p.50).

4 Develop Core Competencies in Collaboration

Collaboration is a learned skill that each partner must have or deliberately acquire if analliance is to flourish. The Australian institution should look within its own organisation toidentify a managerial team whose members already have skills and experience incollaboration. Examples of experiences that could develop these skills include responsibilityfor interdisciplinary services, or for shared services provided centrally that need to becharged back across faculties or educational divisions. People are needed who already havea demonstrable ability to work in a difficult collaborative world, rather than people who haveexcelled in a functional or discipline-focussed teaching environment. It is likely to be difficultto assess the competencies of potential partners in this area.

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5 Establish an Effective Governance Structure

A complex high level governance structure is needed for careful assignment of decisionrights within the alliance so that a sustainable balance between academic and commercialinterests in the overseas market and the demands of the Australian domestic market is

maintained. This is a challenge that does not align well with the typical governance structurefound in Australian educational institutions which is frequently representational and notdesigned to initiate and fund large commercially based strategic alliances in risky overseasmarkets or to include stakeholders for offshore investments.

Additionally, for effective governance of strategic alliances there must be:

clarity and focus of purpose for the alliance governance structure managers able to take on the accountability requirements and responsibility for running

the alliance from the perspective of the Australian institution

explicit delegation from existing institutional governance structures to the alliance and itsgovernance framework of the freedom to deliver the targeted benefits and to carry thecontingent risks.

The challenges inherent in these three conditions should not be underestimated. Indeed,some institutions, in both the public and private sectors, may not be well structured to meetthem and may not have the financial and other resources to service them.

6 Actively Manage Cultural Challenges

Cultural challenges vary in frequency and complexity depending on the country of origin ofthe alliance partners and the target country (or countries) of alliance operations.

International trade and foreign relations have generated a broad base of experience andknowledge in country-specific cultural relationships and challenges (see, for example, articleson doing business with China in the bibliography of DESTs Strategic Alliances Literature

Review(p.97). In comparison with the other criteria, it is relatively easy to find guidance andhelp in this area from Australian corporations experienced at doing business in the targetmarket.

7 Protect IP and Brand

Protecting the current intellectual property of the Australian institution, including programsand related educational materials, is difficult. It is not subject to patent or other strong formsof protection and can be appropriated by alliance partners or competitors. The institutionscore competence to develop intellectual property would not be for sale to the strategicpartner. The core competency to generate new current intellectual property is protectable.To sustain the alliance, the emphasis should be on the capacity to continuously refresh andupdate the intellectual property delivered to the customer, referred to in DESTs StrategicAlliances Literature Reviewas the shadow of the future (p.37).

Protecting the brand depends on strong, independent quality assurance policies andprocedures, which cannot be captured by any of the partners delivering the service. Subjectto incentives that are frequently driven by both the numbers of students accepted into, andthose graduated from a program, a commercial partner may be tempted to risk the qualityand therefore the brand to maximise the short term benefit.

8 Align Decision Rights to Create and Capture Value

We can observe how to set up a strategic alliance and how to exit from one, and the optionsand processes involved are well documented in the literature. To create and capturestrategic value through operational excellence within an alliance is difficult to observe and,

therefore, to plan and enact.

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Universities and vocational training institutions that have not operated within a strategicalliance need to co-opt members of their governing body who have already done thiscommercially to provide them with guidance and advice. In addition to finding a goodstrategic partner overseas, it is suggested that one or more Australian-based strategicadvisors who have commercial experience in alliances be identified and appointed to thealliance governance body.

Determining and assigning delegation areas/decision rights is a critical governanceresponsibility in strategic alliances. Effective governance determines what decisions areimportant to the venture, who should make them, and how they are to be made andmonitored. This is a major challenge for organisations and, in particular, education andtraining institutions, because of the diversity of interests and governance arrangements thatexist in that sector.

The delegation areas - allocations of decision rights - to be considered by Australianeducational providers in such circumstances include who admits students; who approvescourse/program content

9 Build Core Capabilities in Change ManagementTo participate effectively in a strategic alliance and to capture ongoing rents, corecompetencies in the management of change in competitive markets are required. Recently,Australian educational institutions have succeeded in a weakly competitive and expandingmarket. What they have not succeeded in doing is capturing a disproportionate share of amarket that is strongly contested by a number of highly qualified, internationally respectedinstitutions. In addition to commitment, collaboration and trust, dynamic contested marketsrequire the alliance to have flexibility and adaptability. The latter will continuously challengethe prior basis and objectives of the alliance, requiring core capabilities in changemanagement. Specific guidelines cannot be provided here because of the contextual natureof the issues.

10 Agree an Exit Strategy

All alliances need an exit strategy. History tells us that most alliances fail or do not last forextended periods. It is important therefore, to agree in advance on how the alliance will beunwound when, rather than if, it fails. To have such a strategy is commercial best practice. Inequity joint ventures, as noted earlier, this will often take the form of a buyout by one ownerof the other. There are contractual mechanisms for doing this, such as by including a Savoyclause in the contract.1 As in the case of partner selection, exit options and actions are welldescribed in the literature.

It is clear from the management literature that strategic alliances are difficult tomanage successfully and achieve the desired strategic objectives. Not all institutions

have the resources to capitalise on the opportunities presented by strategic alliances.Any institution that has questions about its capabilities in more than two of the abovecriteria should not proceed. Doing so will put their brand name and limited capitalbase at risk for minimal short-term benefits.

Alliances are arrangements between two or more otherwise independent organisations.Alliance relationships are collaborative and reciprocal, rather than arms-length, exchanges.Strategic alliances are self-governed, within the context of the type of alliance and theconstraints of national legal and regulatory frameworks.

1A Savoy clause is an arrangement whereby when owners decide to sell, one owner picks the price and the other

owner decides whether to buy or to sell at that price. In essence, one owner cuts the cake and the other chooseswhich slice they will have.

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Ten Strategic Alliance Management Guidelines