New realities of alliance partnering.

• Author: Kuglin, Fred A.
• Position: Cover Story

The disclosures of corporate reporting and accounting scandals have spawned a frenzy to determine what companies had partnership relationships with the Enrons and WorldComs of the world. Now, more than ever, companies are being judged by the company they keep. With alliances a proven engine for growth, companies are being pressed to choose their partners well.

In the parking area of a major airport, a sports car blocked the main entrance. On it, a sign, in bright bold letters, read: "Lemon of the Year, 2002." This owner had apparently taken his/her complaints into an open public forum.

This scene brings to mind two concepts. The first is one of "reach." If the owner went to the trouble of putting a sign on the car, there must have been other communications methods (Internet, email, verbal, etc.) that could have conveyed the complaints to a wider audience. The second concept is one of "partnerships." The automotive original equipment manufacturer (OEM) has an extensive network of suppliers and partners. The trouble with this one car was probably connected to a particular sub-system or system and involved a less-than responsive dealer service department. However, not only were the suppliers, partners and dealer of the problem area pulled into the situation, but by partnership association, the whole automotive OEM ecosystem was tarnished by this owner's actions.

Indeed, the global automotive OEM ecosystem can involve thousands of suppliers and service providers. As the system has evolved, some OEMs outsource whole parts of cars and entire assembly operations have been outsourced to third parties. The final product with "one face to the consumer" carries with it the reputation of all the companies involved. Thus, the success, failure and liability associated with the performance of the vehicle are all shared across the OEM ecosystem.

These integrally connected relationships make it more important than ever to diligently scrutinize every step in the alliance partnership chain. Major retail chains have been under scrutiny for years over their purchasing activities with Third World suppliers and the connectivity of these suppliers to child labor. The same holds true in the automotive industry. In one country a few years ago, the owner of a Tier-Three supplier was jailed for fraud and embezzlement. In the following days, the automotive OEMs and Tier-One and Two suppliers were all in the news connected with this owner. Yet, the only link that all of them had with the questionable owner was as suppliers of parts in the automotive supply chain.

In order to help mitigate the risk involving alliance partnerships, executives can do two things. The first is to understand the different categories of alliance partnerships and their connectivity to risk exposure. The second is to understand the fundamentals of successful alliance partnerships so that the proper disciplines can be implemented to make certain that the company avoids -- and stays out of -- trouble.

The Five Categories of Alliance Partnerships

As described in the OEM example, the ecosystem of a major corporation includes suppliers, service providers, customers, consumers, employees and overall stakeholders. Imbedded into this ecosystem is a network of alliance partnerships that provide the underpinning of major corporate operations.

There are multiple versions or categories of alliance partnerships, each having its own unique characteristics and performance expectations. For simplicity these multiple versions are bundled into five major categories.

1. Sales Alliances. Two companies agree to go to market together to sell complimentary products and services. The market perceives the two companies as "one alliance team" that provides close to an end-to-end implementation capability. Despite the odds of the presence of foul play, don't you think there was a shadow that was cast on any company that had an active sales alliance with Arthur Andersen?

2. ...