Governance of strategic alliances

Submitted by Kamal Wickramanayake on


A strategic alliance is a purposive relationship between two or more independent firms that involves the exchange, sharing, or co-development of resources or capabilities to achieve mutually relevant benefits.

It is important that such relationships are well governed to make sure that the operational or strategic benefits the relationships purport to provide are actually realized.

This document sets some guidelines in governing the strategic alliances. The document is not intended to be comprehensive, but sets the needed directional guidance. It is expected that you continue to learn, use complementary management tools and skills in further enhancing the basic framework that can be built with the guidelines detailed here.

This document summarizes and draws from the excellent work of a few researchers whose publications are referenced at the bottom. Interested readers are encouraged to read them. However, this document also contains lessons learned by the author. Hence, this is not a replication or a mere summarization of content from other publications.

Benefits of Strategic Alliances

  1. Increasing efficiencies and effectiveness

  2. Accessing new or critical resources or capabilities

  3. Reducing the financial risk

  4. Splitting R&D expenses

  5. Help firms strengthen their competitive position by enhancing market power

  6. Entering new markets

Risks of Strategic Alliances

  1. With alliances, you extend your organization and you may get exposed to new risks due to the acts of your partners

  2. Partners may behave opportunistically deteriorating trust and limiting shared value

  3. Can lead to loss of control of proprietary information

  4. Can lead to diminution of perceived independence

  5. Can lead to clash of cultures

  6. Competitors of your partner(s) may refuse to do future business with you

  7. Strategic alliances can lead to produce new local or even global competitors

  8. Alliance may be subject to unique regulatory issues

Forms of Strategic Alliances

Different kinds of interfirm relationships exists. Some of them that can be considered strategic alliances are:

  1. Joint R&D, manufacturing or marketing partnerships

  2. Partnerships to access mutually complementary skills or assets

  3. Partnerships formed for the purpose of setting standards

  4. Equity investments or swaps

  5. Joint ventures

Strategic Alliance Evolution Phases

  1. Formation phase
    Selection of appropriate partners and initiation.

  2. Design phase
    Collaboratively set up appropriate governance to oversee the alliances.

  3. Postformation phase
    Management of the alliance on an ongoing basis to realize value.

Strategic Alliance Success Factors

The success of a strategic alliance depends on some key factors at different phases of alliance evolution:

A. Formation phase factors that affect success

  1. Partner complementarity
    Refers to the complementary nature of the contributions (to the partnership) from the partners.

  2. Partner compatibility
    Refers to the working style and cultures of partners.

  3. Partner commitment
    Refers to the willingness of a partner to make resource contributions and also to make short-term sacrifices to realize the desired longer-term benefits.

B. Design phase factors that affect success

Different alliance governance forms exist. At times, they can be combined to achieve greater success. Following are some forms of governance:

  1. Equity based alliances
    Owning the equity has a natural tendency to set a good governance framework.

  2. Contractual provisions
    Clearly sets forth mutual rights and obligations of partners.

  3. Relational governance
    Relies on goodwill, trust and reputation.

C. Postformation phase factors that affect success

  1. Coordination mechanisms
    This is vital for the success. Nothing can be achieved without proper coordination.

  2. Trust and relational capital
    A firm and its partner(s) should not act opportunistically. Each side should demonstrate reliability and integrity.
    Trust can bring significant benefits to an alliance.

  3. Conflict resolution and escalation

Performance Evaluation

Alliances should regularly be evaluated to make sure that the partners do receive the purported benefits. Leaders of firms should consider evaluation of alliances at least once per year. At times, more frequent evaluations may be needed.

Evaluation may focus on multiple aspects:

  1. Evaluation of success
    Were the specific initiatives and goals accomplished? If not, why? Were the initiatives in alignment with the purpose of partnership?

  2. Evaluation of success factors
    Success factors described earlier can themselves be evaluated. For example, does the partner compatibility continue to exists? Has the trust evolved? Have the coordination mechanisms been sufficient? Are there any problems with the design of the alliance (governance framework)? Does the alliance indicate continued future success?

  3. Evaluation of partner(s)
    Do the partner organizations expose your organization to new risks? Do they continue to be successful? In case of difficulties, are there opportunities for you to assist them?

Do's and Don'ts

  1. Always attempt to build alliances for clear goals. Ambiguities may be cleared by having more frequent performance evaluations. In very rare circumstances you may formulate an alliance with goals to be identified later on. Be focused on determining them (the goals) within a reasonable period of time.

  2. Don't establish alliances only for the sake of maintaining relationships with partners. You should be clear about goals. Just maintaining relationships does not require special alliances. Maintaining alliances are costly (unless you play the role of a dead).

  3. If an alliance does not work well, correction or termination is needed. Evaluate the trade-offs of correction. At times the cost of correction may not justify the returns.

  4. Many alliances fail - even with demonstrated results. At times correction may not ever be possible. If an alliance was formed for purported benefits, termination should also be considered with the same rigor since that (termination) may bring other benefits. At least it will save your resources. Be objective.

  5. People often demonstrate good will to cover up their incompetencies (and at times to cover up hidden agendas). Your partners may often do the same. That's why it is important to be result oriented. Partner selection and performance evaluations need to be as objective as possible.


  1. Managing Strategic Alliances: What Do We Know Now, and Where Do We Go From Here?
    Academy of Management, 2009

    Prashant Kale is Associate Professor of Management — Strategy at the Jesse Jones Graduate School of Management, Rice University.
    Harbir Singh is the Mack Professor, Professor of Management, Vice Dean for Global Initiatives, and Co-Director of the Mack Center for Technological Innovation at The Wharton School, University of Pennsylvania.

    This 19 page article is an excellent read on strategic alliances. It is very insightful and is a must read for anyone interested in strategic alliances.

  2. Assessing the Performance of Strategic Alliances: Matching Metrics to Strategies
    European Management Journal Vol 18 No 5 October 2000

    Karen Cravens, University of Tulsa, USA
    Nigel Piercy, University of Cardiff Business School, UK
    David Cravents, Texas Christian University, USA

    This article is very detailed and comprehensive in the mentioned topic. Of particular importance is the systematic approach taken. It includes an excellent illustration of how to develop an alliance evaluation plan.