16
Strategic Relationship Analysis

Short Description

Strategic relationship analysis (SRA) involves the study of strategic inter-firm relationships to determine their present and potential future competitive impacts. Strategic relationships (SRs) are found in the form of alliances, consortia, joint ventures, networks, and partnerships. They are all cooperative arrangements in which the competitive success of the partners is bound together to some degree.

Background

Strategic relationships were studied by international business scholars in the early 1970s. Most of the mainstream economics and industrial organization research struggled to fit SRs within the predominant "theory of the firm" that had guided knowledge development to that time. By the 1990s, inter-firm relationships began to be addressed as part of the quickly developing organizational economics field.¹

Since the early 1990s, there has been an explosion of research into all forms of SRs, using approaches such as historical industrial marketing, negotiation analysis, organization economics, organizational sociology, population ecology, resource-based view of the firm, social network theory, and strategy and general management. Researchers have mostly assessed how SRs are formed and managed, with some more recently trying to understand how they relate to various performance outcomes.

Scholars have attempted to classify SRs across a range of variables, including but not limited to duration of commitment, extent of joint decision-making, nature of contract, degree of interdependence, degree of resource sharing, and degree of overlap among their value chains.² One way of illustrating the range of relationships is to examine many of the popular forms of relationships, as shown in Figure 16.1.

Figure 16.1 Common forms of SRs

In this instance, we are particularly interested in inter-firm relationships between business organizations. This is not to discount the value of management network analysis, which examines the relationships between individuals within and around an organization. Indeed, many of the concepts developed at the micro-level of network analysis are adaptable for use at the more macro-level of inter-organizational or inter-firm analysis, and vice versa. Common forms of strategic inter-firm relationships include, but are not limited to, those described next.

Consortia—An association of firms who cooperate for some definite purpose. Cooperation is normally formed through contracts. Each party retains its separate legal status, and the consortium's control over each participant is generally limited to activities involving the joint endeavor, particularly the allocation of profits. A well-known consortium is Airbus Industrie, one of the world's premier airplane manufacturers that operates mainly in Europe. Airbus is owned by EADS and British Aerospace. EADS itself is a merger of France's Aeropspatiale-Matra, Germany's Daimler-Chrysler Aerospace, and Spain's Construcciones Aeronauticas, all of whom were originally separate partners in the consortium. Airbus' status as a consortium means that profits accrue to the partner firms relative to their ownership interests.

Constellations/alliance groups/strategic networks—A constellation is a set of firms linked together through alliances that compete in a particular competitive domain, business, market, or technology. These are portfolios of alliances that come together either formally or informally within a larger network. Popular examples of these constellations are the global airline relationships that compete under the Star Alliance global partnership, OneWorld, or SkyTeam Global Alliance umbrellas.

Joint ventures (JVs)—Contractual agreements bringing together two or more organizations for the purpose of executing a particular business undertaking. The contracting parties form a new legal entity and agree to share in the profits and losses of the JV. These can be either operating or non-operating forms. Operating JVs create a new firm with its own facilities to perform designated functions. Non-operating JVs are purely administrative or legal entities that contract with their parent firms for certain activities.

Licensing agreements—The granting of permission by a firm to use intellectual property rights, such as patents technology, or trademarks under certain defined conditions. The sponsor is typically a larger and more established partner that provides the smaller party with needed capital to develop a promising product. These can include simple product development funding agreements with or without options to acquire the resulting output or non-specific development funding that was targeted to help the sponsor obtain access to more preliminary developmental work or research that may not be immediately applicable to its business.

Mergers and acquisitions (M&As)—Sometimes viewed as an alternative strategy to an alliance because the relationship involves a complete transfer of ownership of one organization to the other (that is, the relationship essentially ends after the acquisition is completed). These need to be considered and compared as strategic options for one another.³ M&As are especially well suited for situations where the popular forms of SRs do not go far enough in providing a firm with access to the resources it needs to compete more effectively. Many M&As are driven by strategies to achieve one of the following objectives:⁴

• Allow the acquiring firm to immediately gain more market share.
• Eliminate surplus capacity in an industry by removing the "fat" from bloated operations.
• Facilitate a firm's entry to new geographic territories or international markets.
• Extend the firm's business into new product or service categories.
• Provide speedier access to developing technologies as opposed to performing time-consuming R&D.
• Lead the convergence of existing industries whose boundaries are being blurred by disruption and new market opportunities.

Minority investments—A relationship in which one firm makes an investment in the shares of another, but whose ownership of the firm is less than 50 percent of its outstanding shares. These are often made by large, established businesses that make purchases in high-potential businesses at an early stage of those businesses' development.

Networks—An intricately connected system of firms. Derived from social network analysis, this is the study of the structural form of the ties that link organizations or individuals. ⁵ It is a particularly useful tool for mergers and acquisitions, JV analysis, and inter-firm relationships.

Outsourcing—Work is performed for a firm by people other than the firm's full-time employees. The two big drivers behind outsourcing are that outsource providers can provide services better, cheaper, or more quickly than the firm can or that it allows the firm to focus its capabilities on what it does best in the marketplace.

Strategic alliances (SAs)—Agreements between organizations in which each mutually commits resources to achieve shared objectives. Firms may form strategic alliances with a wide variety of players: customers, suppliers, competitors, universities, or divisions of government. Through strategic alliances, firms can improve competitive positioning, gain entry to new markets, supplement critical skills, and share the risk or cost of major development projects. When these cut across national boundaries, and depending on how many boundaries are involved, they are sometimes referred to as cross-national, multinational, or global strategic alliances. Others define these more restrictively; for example, Professor Benjamin Gomes-Casseres of Brandeis University views them as open-ended, incomplete agreements with shared control that create value by combining the capabilities of separate firms. An "incomplete" agreement means that the full terms or conditions of the alliance are not fully established at its conception because if they were, the need for a strategic alliance would not exist. Professor Gomes-Casseres summarizes why these are used when he states, "With an alliance, you can pinpoint where the greatest value creation potential lies and form the partnership around those specific areas only."

Strategic Rationale

Over the last few decades, firms across nearly every industry and in all parts of the world have elected to form SRs to help them accomplish their strategic initiatives and enhance their competitiveness in domestic and international markets. There is evidence that firms are increasingly looking to SRs as a way of achieving greater scale, incorporating new expertise, or quickly moving into a new geographic region, particularly if they view the complexity and resources required to merge with, or acquire another, firm to be too daunting. Gomes-Casseres notes that we now understand better about how firms and alliances are organized, but are still lagging in understanding how these relationships impact marketplace dynamics; nevertheless, there are a number of reasons why organizations pursue these relationships as a means of enhancing their competitiveness.

Purposes Served by SRs

SRs can mean different things to different organizations. Relationships, like alliances and JVs, serve many strategic purposes; in other words, helping the organization position itself for the longer term, making uncommon marketplace moves, enhancing its competitiveness, and allocating significant resources. The competitive attraction of relationships is in allowing firms to bundle competences and resources in a joint effort that is more valuable than when they are kept separate.

SRs have become a more prominent tool in supporting a firm's pursuit of competitiveness. There are a number of reasons for this increased popularity of SRs; the prominent ones are identified in Table 16.1.

Table 16.1
Reasons for Engaging in Strategic Inter-Firm Relationships

Firms have a range of options for achieving enhanced growth and competitiveness. In fact, there is empirical evidence that points to the substantial financial and strategic value of SRs, including but not limited to the following:

• A 1999 survey on global alliances by Accenture Consulting showed that strategic alliances accounted for an average of 26 percent of Fortune 500 firms' revenue, which was up from 11 percent only five years earlier, and that alliances accounted for 6 to 15 percent of the market value of the average firm.⁶
• Firms, such as Cisco, which use acquisitions and alliances appropriately, grow faster than rivals do.⁷
• Studies demonstrated that the 15 most successful strategic alliances increased shareholder value by $72 billion, while the 15 least successful ones generated a loss of market capitalization of around $43 billion.⁸
• American firms announced 74,000 acquisitions and 57,000 SAs between 1996 and 2001. During that period, the acquisitions' combined value was driven upward by $12 trillion.⁹

Developing and maintaining successful relationships in a variety of forms with other firms is critical to achieving competitive advantage for many firms.¹⁰ Firms like Cisco, HP, IBM, Oracle, and Procter & Gamble, among others, are increasingly looking to alliances to enhance their competitive capabilities and win new marketplaces. Relationships have also become more critical to the successful execution of business strategies, particularly in the global marketplace. They are a flexible alternative to acquisition or growing organically and can provide better access to resources and capabilities. With the growing number and complexity of relationships, however, most firms are not as process focused and disciplined as those whose relationship successes are commonly heard about in the general and business media.

There is always an element of co-operation present in the realm of competition; even long-time rivals form relationships to achieve common aims. Notable examples are the Airbus consortium of European aircraft manufacturers described earlier, different banks working together to launch Visa and Mastercard, the Sematech consortium of U.S. semiconductor manufacturers, and milk and dairy farmers using the Dairy Farmers of America organization to achieve cooperative marketing, distribution, supplies purchasing, and market access in that agricultural sector. The development of trust and commitment in these collaborative and competitive relationships will usually lead to more beneficial outcomes.¹¹

SRs take on a greater role for multinational corporations in a rapidly globalizing marketplace. A firm that seeks global market leadership requires relationships to assist it in accomplishing what it cannot easily do alone. For example, SRs can help a firm get into critical country markets more quickly than it can alone, acquire inside knowledge about unfamiliar markets and cultures through its relationships with local partners, or access valuable skills and competencies that are concentrated in particular geographic locations.¹²

Two Key Strategic Relationship Processes

All SRs will compose at least the following two critical processes that will be of prime interest to the business and competitive analyst:

1. The process of forming the strategic relationship
2. The process of managing the relationship

Each of these processes should be studied by the analyst as they can offer clues that can impact a rival's, or your own firm's, competitiveness.

Although successful SRs can be prime vehicles for future growth and increase the shareholder value of the participating parties, many firms are finding it increasingly difficult to capture the full value of their relationships. It is commonly accepted that a majority of strategic alliances under-perform or end prematurely, and a number of the failed relationships have resulted in dramatic decreases in market capitalization.¹³ Two primary reasons for relationship failure are insufficient attention to the working relationship between partners and lack of a corporate alliance management capability. Firms that have demonstrated the best performance in alliance management are those for whom relationship competencies are a corporate capability and the relationship management process is viewed as a central feature to their firm's success.

Gomes-Casseres identified 10 factors to be critical to success in both alliance formation and management processes:

1. Alliances must serve a clear strategic purpose that is related to the larger business strategy of the firm.
2. Partners must have complementary objectives and capabilities.
3. Partners must be able to work on those tasks in the relationship for which they are uniquely qualified.
4. Incentives must be structured to encourage co-operation among the partners.
5. Areas of potential conflict between the partners must be identified in advance and minimized.
6. Communication must be active, two-way, and candid to encourage the development of shared trust.
7. Personnel must move in both directions between partners.
8. Partners need to retain a focus on their long-term shared objectives and sometimes be willing to suffer inconvenience or pain in the short term.
9. Partners should try and develop a number of projects on which they can collaborate together so that all their eggs are not in one risky basket.
10. Partners should retain and build in as much flexibility into their arrangements as feasible in order to evolve with changes in the environment.

Despite the many benefits that have been achieved by partners in SRs, there is growing evidence that overall performance in relationships may not be as positive as was initially thought.¹⁴ Many SRs become unstable, break apart, and are discontinued. The longevity of an alliance depends on how well the partners work together, their success in responding to and adapting to changing internal and external conditions, and their willingness to renegotiate the bargain if circumstance so warrant.

There are also dangers for firms that rely too heavily on SRs. A key vulnerability is one party becoming dependent on other firms in their relationships for essential expertise and capabilities over the long term. Because of these varied performance outcomes, it is critical that you be able to understand and decipher the signs of changing competitiveness within relationships affecting the firms, their industries, and their rivals.

Strengths and Advantages

SRs have grown in prominence in recent years and are expected to continue this trend. Because of the competitive importance and sheer value of these inter-firm combinations, business and competitive analysts need techniques that allow them to draw insights into the decisions and actions their own firms need to take to improve their competitive context. Effectively combined with other tools, SRA can be a powerful weapon in the analytical arsenal of the analyst.

SRA assists the analyst in focusing on competition in the way that it is increasingly being structured. It helps you to understand the nature of competition as it is conducted by different combinations of firms. It can also be used to provide insights into competition at a more micro-level (for example, relationships at a particular stage of an industry's value chain) than some other techniques.

SRA can be supported by software applications expressly developed for the purpose of helping you visualize competition as it occurs in networks or constellations. These applications have grown in both availability and functionality in recent years. Combined with the growth of data available on the World Wide Web, these techniques can uncover relationships that would have previously gone unnoticed.

SRA is one of the newest and fastest-developing fields of analysis. Analysts can apply and use this technique in ways that were not even considered a few years ago. As such, an analyst's ability to develop new insights and to better support decisions and actions could be a strategic advantage for the firms who are successfully employing this method.

Weaknesses and Limitations

The application of SRA does not provide ready-made insights or provide immediate decision-making support, but it does provide a wealth of newly organized data and information, often in complex and intricate graphic forms. In order to accomplish the task of developing strategic insight, SRA must be combined with other techniques to get actionable insights. It must also be combined with the growing body of knowledge in this area since there are still no ready-made guidelines that can be universally applied to help you understand competition within strategic inter-firm relationships.

Many SRA efforts, especially those supported through task-specific software applications, quickly become exercises in developing complex network diagrams that provide little practical insight. Most decision makers will not easily or quickly appreciate these visualizations, as they are not the type of data (that is, ordinarily condensed, synthesized, and succinctly summarized) that usually cross their desks. The analyst must make sense of these diagrams in ways that the decision maker will appreciate. This is an area of competitive analysis that is only now receiving attention, and there remains a lot to learn.

SRA requires specific forms of data to be effective. Much of this data will not be easily or inexpensively available or will not be available in a format that will promote the application of SRA techniques. This will require analysts to work with their firm's information specialists and be included when information communication and technology purchasing decisions are being made. Even these decisions will be difficult for analysts and their firm's IT specialists, since many of the applications that would support the gathering and organization of data for studying relationship-based competition are in the development phase, and there are few lengthy track records of experience about the vendors of these systems.

Process for Applying the Technique

There are two major processes that an analyst needs to understand in analyzing SRs. The first requires you to assess the firm's strategic relationship readiness and capability. The second requires you to assess your rival's relationships, relationship resources, and capabilities. Each of these is discussed in turn in the following section.

1. Studying Your Own Firm's Relationship Formation Readiness

In forming a strategic relationship, firms should begin by assessing their readiness to be involved in a relationship. Among other things, this includes having in place negotiation skills, change management expertise, relationship management competence, interoperable systems and processes, support from senior executives, and governance in the form of a relationship management structure.

Relationship-seeking firms should also define their business vision and strategy in order to understand how an alliance fits their objectives. Establishing goals and objectives for the relationship is usually the best place to start, followed by figuring out how closely matched they are to the firm's larger business and strategy goals. This stage of the formation process should also include an understanding of the benefits and costs that will potentially be generated within the relationship. Intangible benefits in the form of risk reduction, increased visibility or publicity, knowledge transfers, rival inhibition, and customer goodwill need to be considered.

Alternatives to a strategic relationship, including building the capabilities or seeking the benefits through the firm's own (that is, organic) activity, or mergers and acquisitions, should also be considered to determine if a relationship is a superior means of helping the firm meet its goals. The firm can usually proceed to the next step if it determines at this step that the goals of the potential relationship fit neatly with its larger strategy, the net gains of engaging in the relationship outweigh the estimated losses, harms and/or risks, there are no unacceptable risks, and a relationship is a superior option to the others available to achieve its goals.

The next step is for you to evaluate and select potential partners based on the level of mutual benefit that can be generated and the perceived ability of the firms to work well together. Analysts should consider: the complementariness of the partner's operational/production and technical capabilities; whether it has been involved successfully in any prior relationships and if it has the capabilities to manage the relationship; and whether it has the resources to make a good "go" of the relationship. It usually also helps to understand the partner's reputation in the marketplace, as the new relationship will be based at least partly upon that facet. Finally, it is useful to work through several of the so-called soft "S" elements of the McKinsey 7S framework (see Chapter 12, "McKinsey 7S Analysis"), such as shared values, leadership style of decision makers, and skills in order to determine whether the potential "fit" of these elements will be supportive to the proposed relationship. Assuming the responses to all of these areas are positive, you can recommend pursuing negotiations.

What occurs next in the relationship formation process is a meeting with the top prospective relationship partner to discuss the future of the potential relationship. This ordinarily begins by specialists in the firm developing a working relationship and mutual recognition of opportunities with the prospective partner. The firm should have confidence in its ability to negotiate reasonable, if not mutually favorable, terms with the partner. It should also have confidence in its ability to resolve any potential differences in establishing the relationship objectives, gaining agreement on the allocation of resources, melding different communication and information infrastructures, creating shared human resource policies and plans, gaining exclusivity on forming relationships with other firms, and establishing performance management and measurement systems, as well as developing controls to assure both parties that the relationship is operating according to both parties' wishes.

Once the relationship is agreed and established, the next task is to provide the appropriate level and quality of management to the relationship. Like most other organizational forms, relationships can evolve over time in a life cycle pattern. A relationship life cycle would include stages of pre-relationship (identification of potential partners), negotiation, introduction (the launch of the relationship), relationship management, and the latest stage of dissolution or restructuring. The life cycle concept can help you understand the phases of the relationship and may provide some keys as to what the partners in the relationship might do in terms of future investments, resource allocations, and other tactical options.

Relationship management is a unique facet of the SR process and requires the partners to demonstrate they have the capabilities to effectively manage their relationship with one another. Some firms designate particular individuals or groups to take on this responsibility. Here are some of the tasks at which an analyst needs to become adept when assessing SRs:

• Assessing the degree of fit between the relationship portfolio and the firm's business or corporate strategy, goals, and objectives
• Assessing the overall performance and value in the firm's portfolio of relationships
• Assessing the performance of individual relationships
• Reviewing all relationships to identify current and potential synergies
• Removing underperforming relationships from the portfolio
• Identifying the fastest-growing relationships for additional resource allocation and funding for greatest return
• Evaluating prospective partners and offering negotiation consultation and assistance
• Defining the parties' roles and responsibilities in the originating and originated relationship
• Facilitating the launch of new relationships by establishing appropriate governance structures and operating protocols
• Re-launching poorly performing alliances
• Assessing the health of the working relationship between your firm and your partners
• Comparing alliance management capability against demonstrated and proven practices (see Chapter 11, "Benchmarking," for more on this task)
• Facilitating the creation of knowledge and performance management systems to facilitate the sharing of lessons and learning across the relationship portfolio

Having done the preceding tasks, the analyst should be in a better position to provide insights to decision makers who need to make determinations about relationships as a means for accomplishing their strategies. The next task will be to study the relationships maintained and potentially sought by market rivals. This is done in order to identify opportunities and threats facing your firm so you can make decisions and take actions to improve your competitive position.

2. Studying a Rival's Relationships

There are a variety of techniques for studying a rival's relationships. The method we recommend is a fairly typical three-step process, which includes the following:

1. Identify relationships.
2. Map relationships.
3. Assess and analyze the relationships.

These are discussed in order next.

1. Identify Relationships

Many relationships are subtle and unannounced; others are bold and "in your face." For publicly traded rivals with highly visible products targeted at consumers, it is generally easier to identify their relationships. A big part of this process involves taking the results of the rival's business model analysis (see Chapter 8, "Business Model Analysis") and SWOT.¹⁵ A business model analysis has, for example, shown that two firms in the operating systems marketplace took very different approaches to leveraging their primary products. Microsoft had a closed platform and deliberately made it difficult for others to partner with them unless it was squarely on Microsoft's terms. Red Hat took the opposite approach with its Linux systems and essentially tried to leverage its open platform through relationships with whatever parties could benefit from a relationship with it.

It is also important at this stage to identify the nature of the relationships. Does the rival tend to prefer using strategic alliances? Has it been dependent on JVs? Does it have relationships with certain consortia that it relies upon for its competitiveness? The analyst should try and uncover the rival's choice of relationships in the recent past, as this may indicate its predilection toward the future. A historiographical approach (see Chapter 25, "Historiographical Analysis") can be used to facilitate this examination of past relationships.

2. Map Relationships

Where the nature of a rival's relationships are predominantly in network forms (for example, constellations, strategic alliances, and consortia), it is usually best at this point for you to employ mapping techniques so that these relationships can be studied visually. These maps can be developed in two primary ways: by using whiteboards and markers/pen and paper, or by using digital mapping, modeling, and/or visualization software. Because of the overwhelming volume of data associated with a rival's relationships, analysts need "maps" of the pathways between firms, especially in complex industries or marketplaces. These maps can provide a sense of context that is absent from most hierarchical presentations of data in linear text form. The map can also help you to quickly get an adequate overview of the relationships in an unfamiliar area to guide the efficient use of conventional analysis methods.

One of the newer ways of understanding relationships is to do an analysis of relationships using information available on the Internet. Search engines such as HotBot, Google, and Alta Vista provide the "reverse link look-up" for links that lead into a firm's main Web site. The links indicate either official or unofficial relationships. Using this form of hypertext link analysis, you can often uncover relationships between firms that may not have been as clearly uncovered through traditional methods of human source or media analysis collection. Reid extensively describes how this form of Web link analysis can uncover otherwise hidden relationships within the World Wide Web, particularly as the relationships may provide you with competitive analysis insights.

In this book, we are mainly looking at the relationships between firms. Although we focus our comments to this level, this does not preclude you from looking at the nature, type, and directions of individual or personal relationships. Each of these levels of analysis can help you gain a richer understanding of the firm's rivals, its relationships, opportunities, and vulnerabilities.¹⁶ Corporate relationships are the formal and informal relationships that a rival has with other organizations. Most relationships are created because there are some important exchanges of resources (funds, expertise individuals, and assets) occurring between the related organizations. These exchanges ordinarily leave a trail of visible evidence that is among the easiest for good intelligence practitioners to locate and gather.

3. Assess and Analyze the Relationships

Once the analyst has mapped the relationships that rivals maintain, he needs to examine the structure, developmental and managerial process, and context of these relationships for a variety of factors. Among the factors are the following: ¹⁷

Age or timing of the relationship. SRs have been known to follow a traditional life cycle pattern,¹⁸ and the age of the relationship can provide clues as to what might transpire with the SR in the near future. SRs tend to go one of two ways after a number of years: They either disband due to the failure of the relationship to accomplish the partners' goals, or they are restructured to create a new, independent entity or a different organizational form to maximize the ability of the relating partners to succeed in the marketplace. On the emergent side of the life cycle, Eisenhardt and Schoonhoven argue that firms exhibit a higher propensity to enter into alliances in markets with many competitors, as well as in markets that are in an emergent life cycle stage. Some industries—for example, biotechnology—also exhibit patterns whereby high levels of relationships are formed at an early stage of technology evolution.¹⁹

Location of the relationships. You need to assess whether the rival tends to use its relationships in certain geographic markets (that is, it has JVs in Asia, but not in Western Europe), or whether the relationships are located at a particular point in the rival's value chain (for example, some firms in chemicals, biotechnology, and pharmaceutical industries are known to rely heavily on SRs to help them perform their research and development activities; auto manufacturers rely heavily on relationships in the purchasing and sourcing areas, as well as the development of advanced technologies).

Management's relationship capacity and expertise. Many firms active in pursuing and participating in relationships will have individuals (for example, relationship portfolio managers) and structures (for example, an alliance management function) designed to manage their portfolio of relationships; this is usually a sign that it views this activity as important to its success. Relationship management capabilities have become increasingly important in firms that simultaneously manage a large number of relationships. These firms are essentially forced to institutionalize relationship management practices. Due to the strategic importance of relationships in many of these firms, relationship management capabilities have the potential to be a source of competitive advantage. On the other hand, firms that have no history of being in relationships before may experience greater difficulties in developing these relationships.

Market context of relationships. In order to determine whether a relationship will actually impact the profitability or market share of your firm, you should attempt to answer the following questions:

• What is the size and relative attractiveness in terms of profit potential of the market targeted by the relationship?
• What share of the market do the potential partners currently hold?
• How quickly is this particular area of the prospective partners' business growing?
• Have prospective partners been improving their capability in the targeted relationships' market area?

Combining these questions with already conducted techniques, such as critical success factor analysis (see Chapter 18, "Critical Success Factors Analysis"), industry analyses (see Chapter 6, "Industry Analysis (The Nine Forces)"), competitor analyses,²⁰ and/or SWOT can be highly beneficial in answering these questions.

Mix of relationships. This requires you to look at the types of relationships the rival has. Does the rival primarily use strategic alliances, or do they rely heavily on licensing agreements or co-activity (that is, co-marketing, co-production, and co-purchasing) arrangements? Assuming the rival offers products or services across a range of markets, does it use certain forms of relationships in some markets, while using different forms in others? The mix of relationships it uses may provide you with insight into what it is trying to achieve and the next steps it may choose to make.

Number of relationships. Some firms are known for making heavy use of relationships in the way they approach their marketplaces; others are known for avoiding them. The number of relationships a rival has, particularly as it compares to other rivals in similar marketplaces, can give helpful insights into the approach, resources, and capabilities of the rival.

Position in the relationship. The positions of members in the relationship, particularly in networks or consortia, can indicate much about the behavior of firms or the entire relationship. Firms positioned at the center of a relationship often display a greater ability to influence the outcome. Networks or consortia with a powerful, centrally positioned firm will often take on these attitudes and behavior, as opposed to the characteristics of the more peripheral parties.

Potential for knowledge spillovers. SRs are often formed to capitalize on knowledge, two types of which are of particular interest to the analysts since they signal different things: migratory knowledge, often technical in nature, which can be transferred easily between people or organizations in a formula or product; and embedded knowledge, which defines how a particular firm organizes itself to do business.²¹ SRs take place between myriad organizations in many industries, and large multinational corporations can be involved in hundreds of relationships simultaneously.²² Therefore, it is often important not only to identify your rival's partners but also its partner's relationships as well. A rival's partner may also be your competitor or collaborator in another relationship, so care must be taken that information or knowledge shared in one relationship doesn't leak over to your rival through another relationship.

Size of the firms in the relationship. The research remains unclear about the relationship between the size of firms and the likelihood to either form or behave in certain ways in relationships. Gomes-Casseres suggests that absolute size may be less important for the partnering behavior of small firms compared to their relative size with direct rivals. He notes that firms that lead their market segments and are large compared to their direct competitors are likely to have less incentive to seek alliances.

Strength and positions of the parties in the relationships. Some relationships are more important to a rival firm than others; for example, one in which the rival is benefiting unevenly or is in a sector that it considers to be critical for its future or growth will be more closely guarded and given more managerial attention than relationships that are at the periphery of their strategy. Eisenhardt and Schoonhoven suggest that firms are more likely to form alliances if they are in a vulnerable strategic position. They define strategic position through the number of competitors, the stage of market development and the strategy of the firm. Another key facet to the strength of the relationships is to look at the resources strength and capabilities of the partners involved. Well-managed relationships between strong partners can often result in more powerful rivals in the marketplace.

Clusters of relationships. As opposed to only assessing micro-level dyadic relations between firms, you also need to look at multi-level relationships in the form of alliance blocks, clusters or constellations. Competition between alliance blocks is a form of rivalry in which groups or clusters of firms that link together for a common purpose by means of SRs, is superimposed on competition between individual firms.²³ Driving forces and competitive pressures often favor some clusters while hurting others. The profit potential of different clusters varies due to strengths and weaknesses in each cluster's market position. A good example of clusters of relationships is the constellation of relationships present among air transportation firms. Table 16.2 shows the constellation of relationships that constitutes these relationships as of 2006.

Table 16.2
Major Constellations in the Air Transportation Industry Circa 2006

Source: Market shares are of all air passengers as of end 2004 and were drawn from data in the IATA 2005 annual report.

After having studied the relationships and worked through these questions, you should be in a good position to make sense of the competitive impact of the rival's relationships. At this point, it will be important to recommend insights to decision makers that can leverage them. For example, a recommendation might be to fund opportunities to weaken a rival's position by weakening its relationships or to strengthen one of your own firm's relationships as a means of precluding a rival from gaining an advantage. The kinds of recommendation that can emanate from SRA are often high level and of high value and therefore should be most appealing to the senior decision makers and executives in your firm.

FAROUT Summary

Figure 16.2 Strategic relationship analysis FAROUT summary

Future orientation—Low to medium term. Projecting the nature of SRs into the future is not an easy task, and most forms of SRA have yet to build in the ability to extrapolate relational behavior into anything beyond the short term.

Accuracy—Medium to high. Most SRA requires sophisticated mapping, mathematical modeling, and statistical skills, assuming the presence of the appropriate data underlying these applications.

Resource efficiency—Low to medium. Gathering the data needed to perform a sophisticated SRA can require substantial digital as well as human resources. The establishment of databases for this purpose can require a significant amount of cumulative effort over time.

Objectivity—Medium to high. To the extent that this analysis is not supported through sophisticated models and databases, there can be a high degree of subjectivity involved in interpreting the results of the relationship analysis.

Usefulness—Medium. SRA is most useful when combined with other tools. It can answer some tactical questions easily and quickly, but to help promote strategy development, it needs to be usefully combined with other techniques.

Timeliness—Medium. This depends on the presence of the appropriate data, the nature of SRA applications employed, and the nature of the decision-making task to which it is being applied.

Related Tools and Techniques

• Industry analysis
• Issue analysis
• Management network analysis
• Stakeholder analysis
• STEEP/PEST analysis
• Strategic group analysis
• SWOT analysis

References

Badaracco Jr., J.L. (1991). The Knowledge Link: How Firms Compete Through Strategic Alliances. Cambridge, MA: Harvard Business School Press.

Bamford, J.D., Gomes-Casseres, B., and M.S. Robinson (2003). Mastering Alliance Strategy: A Comprehensive Guide to Design, Management and Organization. San Francisco, CA: Jossey Bass.

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Endnotes

¹ Gomes-Casseres, 2005.

² Bamford, Gomes-Casseres, and Robinson, 2003; Gomes-Casseres, 1996.

³ Dyer, Kale, and Singh, 2004.

⁴ Thompson, Gamble, and Strickland, 2006.

⁵ Krackhardt and Hansen, 1993.

⁶ Gonzalez, 2001.

⁷ Dyer, Kale, and Singh, 2004.

⁸ Gonzalez, 2001.

⁹ Dyer, Kale, and Singh, 2004.

¹⁰ One bit of evidence that relationships have become more prominent among business professionals has been the formation of associations dedicated to meeting the needs of those individuals who perform in strategic relationship roles—for example, the Association of Strategic Alliance Professionals (ASAP), Inc., headquartered in Massachusetts (see http://www.strategic-alliances.org). This association assists both those involved in developing alliances, as well as those executives who must manage them.

¹¹ Lorange and Roos, 1993.

¹² Badaracco Jr., 1991; Jagersma, 2005.

¹³ Dyer, Kale, and Singh, 2004; Gonzalez, 2001.

¹⁴ Churchwell, 2004; Park and Ungson, 2001.

¹⁵ See Fleisher and Bensoussan, 2003, Chapter 8.

¹⁶ For literature and guidance on conducting this form of network analysis at the level of individual to individual relationships, see Borgatti and Foster, 2003; Cross, Parker, and Borgatti, 2002, 2000; Cross et al., 2001; and Krackhardt and Hansen, 1993.

¹⁷ de Man, 2002; Gomes-Casseres, 2005; Mockus, 2003.

¹⁸ See Fleisher and Bensoussan, 2003, Chapter 24.

¹⁹ Walker, Kogut, and Shan, 1997.

²⁰ See Fleisher and Bensoussan, 2003, Chapter 11.

²¹ Badaracco Jr., 1991.

²² Doz and Hamel, 1998.

²³ Vanhaverbeke and Norderhaven, 2001.