Alliances at the margins: Board out of your mind
The deal is signed, now it's time to make it work. Governance—how alliance decisions are made and by whom—will make the difference. Governance is typically implicit and exceptional; good governance should be explicit and routine. Once the prerogative of a few, it must now be the responsibility of many.
By Charles Roussel
Accenture
Corporate board meetings have long been viewed, rightly, as dull affairs—although revolving CEOs and activist shareholders have lately added spice to these proceedings. Alliance board meetings, however, have never been boring. All too often, in fact, they devolve into partisan free-for-alls, with partners hotly debating rights and responsibilities: Who owns newly discovered intellectual property? Who picks up the tab for unanticipated costs? Who gets to hire and fire?
It's good circus but bad business. A cohesive, collaborative-minded board can make an invaluable contribution to the alliance, especially during tough times.
Alliance boards become dysfunctional when they're isolated from the personalities, information, and organizational conversation that would inform more intelligent opinions and enable more prudent decisions. To be effective, alliances boards should be part of the alliance—including the decision-making models used to govern the alliance.
In alliances, authority, and influence are not simply the result how many board seats each side controls, or how the board deliberates or how the management team makes decisions. All in all, governance, especially good governance, is much more than the formal system of checks and balances spelled out in the alliance contract. (Rule of thumb: if you're regularly consulting the contract in order to settle disputes, you're in trouble.)
In fact, this somewhat paternal approach to decision-making runs contrary to current realities. Consider this: today, the average Fortune 100 company derives more than 20% of revenue from allied assets rather than owned assets. These assets often exist only electronically, and often belong to a far away partner. These factors obsolete traditional command-and-control decision-making. You don't command your alliance partner's resources, nor can you. In alliances, control is an illusion.
We need a governance model that reflects these conditions, especially the smaller and mid-sized companies whose lifeblood—customers, products, and reputation—flows from their alliance partners. An effective model for today will have a broad mandate shared by leadership, the board, and, importantly, alliance employees, while still ensuring fiscal integrity—to the gain of both partners' shareholders.
Here are seven governance requirements that apply to every alliance. When an alliance's board and its management team accept and share responsibility for these requirements, the alliance takes a giant step towards success.
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Governance Requirement |
Management's Responsibilities |
The Board's Responsibilities |
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Develop markets and manage market image |
Create and sustain a distinct and durable set of value propositions; create brand equity for the alliance's products and services |
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Ensure fiscal prosperity and integrity |
Through goal setting, performance monitoring and accurate reporting, meet the primary fiduciary obligations of alliance officers, to maximize shareholder value and minimize downside risk for all shareholders |
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Allocate scarce capital |
Make the best choices for investments of scarce resources, taking into account both short and long-term value |
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Value complex assets |
Value and revalue tangible and intangible assets in light of changing market conditions; change planning assumptions and performance targets to reflect new valuations |
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Redirect resource flows |
Re-deploy resources (such as capital, physical assets, or knowledge capital) toward more productive ends as conditions change |
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Expedite relationships |
Make decisions speedily across all parts of the organization, including allied and outsourced businesses |
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Establish durable links across national and corporate cultures |
Establish a common frame of reference for all employees in the form of shared aspirations, operating principles, and values that link global operations—encouraging variations and interpretations to suit local conditions |
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We recommend both parties agree to these terms in writing at the beginning of the relationship. Of course, meeting these requirements is as important as agreeing to them, and here's where the best-governed alliances outperform the rest. The best-governed alliances create new ways of acting for all who participate in the governance system—from the executive team through front-line employees. Compensation, hiring, training, culture-shaping programs—all help align behaviors with the decision approaches and priorities established.
Management from each alliance partner sanctions openness and cooperation, and enforces them, too, when necessary. As a result, employees become more willing to share information quickly and freely. They learn to trust distant colleagues, even those with different cultures and operating practices. Together, they become more adept at collective problem solving, and at decision-making in a virtual environment. Finally, they willingly accept responsibility for actions and outcomes.
By identifying the kinds of issues the alliance must deal with and who will deal with them, good governance helps make alliance decision making more reliable and less stressful. It may also make for less interesting meetings, but then, a little boredom in the boardroom is not a bad thing.
About the author: Charles Roussel is a partner with Accenture, formerly known as Andersen Consulting. He can be reached at charles.j.roussel@accenture.com.