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Executive Overview
Managing the different kinds of risk in strategic alliances is a complex task. We propose a comprehensive framework of risk management with two components. First, we discuss the roles of relational risk and performance risk in alliance resource management. The overall goal is to gain access to partner firms' valuable resources while keeping one's own resources intact. To that end, alliance managers may choose from four orientations-control, flexibility, security. and productivity. The second part of the framework focuses on various risks in the alliance management process, including the stages of partner selection. structuring, operation, and performance evaluation. Within each stage, we identify the key risk that may affect alliance success. These risks are related to fit. flexibility, collaboration, and planning for the future. Together, the two components of the framework provide insights and guidelines for managers to effectively deal with the major risks in the management of alliances.
More and more firms are joining together in strategic alliances. The alliance activities of the thousand largest U.S. firms are expected to account for 35 percent of their total revenue by 2002-up from less than two percent in 1980 and 21 percent in 1997.(1) The number of alliances has been growing at a rate of 25 percent per year since 1985.(2) Every day many alliances are formed, but many are also dissolved. The high failure rate may be due to unique risks inherent in strategic alliances. We try to identify these risks, and provide suggestions for managing alliances effectively.
Strategic alliances are interfirm cooperative agreements aimed at achieving competitive advantage for the partners. Such alliances are usually forged when any single firm finds it either too difficult or too costly to pursue worthwhile business objectives on its own. Although many firms have benefited from strategic alliances, many others have been disappointed by poor performance, and still more are skeptical about what an alliance could achieve for them. Strategic alliances are generally seen as a risky strategy whose success is often unrelated to an individual partner firm's efforts.
Consider the alliance between Northwest Airlines and KLM Royal Dutch Airlines,3 which started in 1992, when Northwest went almost bankrupt and KLM took a 25-percent stake in Northwest. By linking their hubs in Detroit and Amsterdam,...