Building cooperative advantage: managing strategic alliances to promote organizational learning.

During the past decade, we have witnessed the widespread use of strategic alliances across all types of firms competing in every imaginable industry. As costs and risks of new product and process development skyrocket, strategic alliances among companies will become even more a part of the economic landscape, especially those that cross national borders and cultures. Alliances have emerged as organization designs that enable organizations to deal with the increasing complexity of building and learning new sources of competitive advantage to compete in the global economy. In principle, all strategic alliances may be thought of as coalignments between two or more firms in which the partners seek to learn and acquire from each other products, skills, technologies, and knowledge that are not available to other competitors. Alliance arrangements generate their own particular set of managerial and organizational requirements that strongly influence how effectively firms will learn new skills and competencies from their partners. Although alliances can supplement the firm's internal development learning efforts, working within a strategic alliance presents a dilemma. Cooperation with a partner also means competition to learn and absorb new skills and ideas from the other. Thus, strategic alliances pose a new challenge for senior management of to find the best way to orchestrate what might be called "cooperative advantage." Firms enhance their ability to learn from each other while simultaneously protecting their core competencies from unintended encroachment, deterioration, or knowledge leaks.

Even though there exists a growing body of literature that analyzes the payoffs and pitfalls of various types of strategic alliances (Slocum & Lei, 1993), managers involved in alliances are still confronted with many complex strategic and organizational issues - any of which can undermine an alliance relationship if misunderstood or poorly implemented. Building "cooperative advantage" entails a comprehensive understanding of the salient strategic and organizational factors that have a direct bearing on the role alliances play in fostering learning. Sustaining a cooperative advantage requires both partners to realize that alliances will undergo a distinct series of stages in which relationships will metamorphosize over time. A growing array of research has shown that many firms enter strategic alliances with only a limited understanding of how these inter-partner dynamics can change over the span of the relationship, thus greatly influencing the alliance's role as a learning vehicle (Hamel, 1991; Osborn & Baughn, 1990). Compatibility among partners is vital to ensuring a successful alliance relationship. Yet, firms often enter strategic alliances with different objectives and expectations. Partners need to formulate and implement an alliance-specific strategy to manage the evolution of the relationship. In addition, critical alliance management phases, such as criteria for partner selection, planning and negotiating the proposed alliance, and devising the means to implement and manage the alliance, represent distinct stages of alliance evolution that often require very different types of managerial competencies and outlooks. These factors in turn will influence the compatibility among partners, as well as the nature of the inter-firm relationship to learn from one another.

The purpose of this study is to propose a framework that coalesces key factors shaping alliance-based learning with the distinct stages of alliance evolution. All alliances are likely to follow a similar series of evolutionary steps, but the specific factors that promote learning within these stages for any given alliance depend on the particular strategic and organizational contexts facing the individual partners. The specific contextual factors that will shape the firm's ability to learn from its alliance relationship include the following:

1. Nature of the business activity,

2. The type of knowledge that is shared, and

3. The firm's reward systems that it brings into the alliance.

With these factors in mind, a firm's ability to capture the full potential for learning, however, will vary as the alliance evolves across distinct stages of alliance relationships. Table 1 portrays the interrelationship between alliance-based [TABULAR DATA FOR TABLE 1 OMITTED] learning with the different stages of alliance evolution.

In the first part of this study, we will examine the three distinct stages of alliance evolution. Utilizing and combining the different frameworks created by Newman (1995) and other researchers, we focus on three discrete stages: partner selection, planning/negotiation, and implementation/control of the relationship. Later, we consider the dominant factors that influence alliance-based learning. These include the nature of the business activity, type of knowledge, and the firm's reward systems.

STAGES IN ALLIANCE EVOLUTION

A clear understanding of how the three stages of alliance evolution - partner selection, planning/negotiation, and implementation/control - form the basis for effective alliance planning and management is needed. Unfortunately, many firms enter into strategic alliances with little understanding of how intricate these relationships can become. This is particularly true for firms working in cross-border alliances, where differences in cultures, stakeholders, expectations, economic objectives and time horizons can become especially significant. Many U.S. consumer electronics and automotive firms (e.g., General Motors, General Electric) formed a wide array of joint ventures with emerging competitors from the Far East during the 1980's only to find that these partnerships revealed ultimately incompatible strategies and difficult working relationships. Even highly respected firms seasoned in building strong, workable alliances find that partnerships can unravel with alarming speed, despite extensive pre-alliance planning and careful negotiation. Coming Incorporated, a leading glass and specialty materials maker, is renowned for its ability to manage a wide array of international joint ventures with such global giants as Siemens of Germany, Samsung of Korea, and Asahi Glass of Japan, to name a few. Yet, Coming's recent alliance with Vitro-Krystal of Mexico unraveled when the two firms could not come to agreement over manufacturing operations and marketing-based strategies for domestic housewares sold in the North American market.

Alliance planning and management represent a complex, ongoing managerial task that attempts to balance compatibility among partners with the need to learn and build new sources of competitive advantage. Newman (1995) notes that all alliances undergo a series of distinct evolutionary stages, each of which requires a different set of managerial behaviors, skills, and capabilities. These distinct stages of alliance evolution include early negotiation, comprehensive planning, execution, and eventual self-initiation of an independent entity (Newman, 1995). To promote alliance-based learning at each stage successfully, top management teams need to adjust their frames of reference to accommodate the different conditions and issues that directly bear on the alliance (Baughn, Denekamp, Stevens, & Osborn, 1997). Contractor and Lorange (1988), Dacin, Hitt, and Levita (1997), Gomes-Casseres (1994), Harrigan (1985), Killing (1983), among others, have noted that devising criteria for selecting appropriate partners is also a crucial element in managing the alliance relationship. Although it is possible to further define many other stages of alliance evolution, Newman's work is particularly revealing because it isolates the defining managerial tasks associated with ongoing alliance planning and management. Using a modified version of Newman's (1995) framework, and recognizing related work developed by other researchers, our examination will focus on the three dominant stages that are found in alliances:

* Partner selection,

* Planning and negotiating the alliance, and

* Implementing and managing the alliance's operations.

Partner Selection

Selecting the most appropriate partner is an onerous task. This stage takes considerable planning effort because it requires senior management to understand how each partner's objectives and strategies are likely to change over time. Even though a prospective partner may bring desired risk-sharing, technologies, skills and access to new markets, that does not necessarily mean the firm has found a fully compatible partner. Compatibility also depends on both firms' agreeing to pursue similar strategic objectives that will produce lasting synergies and complementary benefits over time. The task of gauging and selecting compatible partners is greatly complicated by potential cultural differences. Definition of time horizons for project completion, involvement of host governments, and alternative frameworks used to measure risk are among some of the most salient differences that interact between U.S. and foreign partners.

One example of dissimilar strategic objectives was experienced by Caterpillar, which entered a joint venture with Daewoo to build …