Managing alliances for performance
pharmafile | October 16, 2003 | Feature | Research and Development |Â Â allianceÂ
These days no pharmaceutical company would be caught admitting that they did not have an alliance strategy. After all, the management literature is rife with articles telling you that strategy is central to alliances. Every '10-step' alliance development programme has the same first step – a business strategy that shapes and guides the development and pursuit of alliances.
However, with alliances now a de facto part of the R&D portfolio, the more interesting question is not whether you have a strategy for your alliances, but how well developed and mature your alliance management capability is. This will ultimately determine how much you can expect to gain from the substantial investments made in alliances. Alliance management capability also has a considerable bearing on a successful outcome.
Assessing alliance capability
In benchmarking or assessing an organisation's alliance management capability, we use a simple model that considers not only the strategy behind the alliances but also how alliances are negotiated and structured, the infrastructure supporting the capability and how companies manage the development and exit of alliances.
In this way the model forms a continuous cycle, that recognises the importance of feedback and in refining or setting subsequent strategy, which is essential to the overall improvement of performance.
The maturity of an organisation's alliance capability is a composite of its maturity in each of the individual components making up the alliance cycle. Typically, we see organisations that have excelled in one or more areas and are considered the 'leading practice' in that component. At the same time, it is possible that in other components, the same organisation has room for improvement. Our experience has shown that organisations with less developed alliance capabilities are more susceptible to risk of failure. Those that have more mature capabilities are also exposed to risk but are able to manage this risk and reduce its negative impact.
There are distinct characteristics that describe each of these phases. As the organisation's capabilities mature, it builds on the strengths of its previous experiences and adds to its capability portfolio.
Phase 0: 'First time riding a bike'
Organisations in this phase are typically just starting out with alliances. They are new to the concept and may have either no alliances or very few. No alliance strategy exists and each alliance is typically approached in an ad hoc manner. There are few if any dedicated staff positions for alliances and most often alliances are handled through the business development function/person or, in some cases, through the R&D function. Many small biotechnology companies are at this stage as they are just coming to the realisation that strategic alliances will need to form a critical part of the business strategy going forward.
Phase 1: 'Wobbly rider'
These organisations typically have had a little experience with alliances but are forming alliances in an opportunistic fashion. There are few protocols or processes guiding the formation of alliances, and their analytical capabilities also lack sophistication – for example, their ability to do a comprehensive risk analysis, evaluate the strategy and partner fit. There is, in general, little structure to manage the alliance and little formal IT support or tools being used. The organisation has likely not given much thought to the governance of the alliance and has not thought about an exit strategy either.
Phase 2: 'Confident biker'
By this phase, the organisation has a well-established core team in place to manage alliances on a global basis. They have a moderate number of alliances in place and have developed good analytical capabilities to evaluate the value and fit of the alliance. They have a multidisciplinary team that sources, evaluates, negotiates and manages the alliance. This organisation is more strategic in the way it approaches an alliance but may lack a formal strategy underpinning its entire capability. Their processes are in the initial stages of getting formalised, but learnings have yet to be codified into a formal knowledge management system. The companys alliance operations and management tend to be somewhat structured though there may be gaps in some areas, such as having a common culture with its alliance partner, conflict resolution, and others. These organisations have not integrated the alliance culture into their organisation and still view alliances as an extraneous element to their business strategy.
Phase 3: 'Racing enthusiast'
Organisations in this phase are approaching the industry benchmarks. They have standard alliance procedures and policies in place. A core group of alliance professionals have access to training and development of strategies to increase the number of successful collaborations. They have the ability to manage multiple alliances on a global basis. Alliances are now a core element of their strategic planning process and there is a clear strategy of which alliances should be pursued to leverage strength and to grow. Technologically, there are electronic interfaces that support alliances by connecting the various groups involved. The alliance partners view each other as collaborators and their improved communications is the basis for a good conflict resolution process. There are regular performance assessments, which minimise and allow the partners to manage any emergent risks.
Phase 4: 'Tour de France rider'
These organisations represent the leading practice along key capabilities. They have a sophisticated competitive intelligence (CI) system linked with the management system. Their alliance strategy is well defined and they are proactive about sourcing new technologies using 'technology radar'. They have well articulated and sophisticated portfolio management techniques to manage the risk and return of their many alliances. Knowledge management is well defined and there is a continuous improvement process in place. Exit strategies are crafted at the point of alliance creation and the performance of the alliance is monitored to minimise loss and cost if exit is necessary. The alliance relationship is largely collaborative, with a culture that is different from that of each of the contributing partners.
Evaluating your alliance capability
There is no single correct way to forge alliances. Each company will, over the course of its evolution, develop its own approach and strategies and should tailor and integrate its alliance capability with the overall strategy and business needs. Different organisations will achieve maturity at different speeds and, even within an organisation, may choose to grow one aspect of its capability faster than another. It is a rare organisation that scores highly on all dimensions simultaneously. However, there are companies that can be looked at for 'leading practices' across various components of the capability.
It is well known, for example, that Merck has been one of the leaders strategic alliances. The company often takes an option model approach to selecting its alliances. Simply put, the option approach applies options pricing theory, specifically the Black-Scholes Model, to real investments. This approach provides insights about businesses and strategic investments, as well as providing an important strategy for the company to build on. Furthermore, this approach can be leveraged when building a portfolio of technologies that are in early development and unproven.
Eli Lilly is another interesting company in its approach to attracting potential companies and academia. Its website 'Sourcing Innovation – Seeking Alliances Research without Walls' describes its approach. One interesting aspect of this is that information about potential partnering opportunities may be submitted electronically. By building a leading practice on this component of its capability, Lilly has competitively positioned itself to attract potential collaborators while building a solid CI database of information on what new technologies and discoveries are underway in labs.
A majority of biotech companies are seeking alliances for funding, reducing risks and gaining stability. They typically fall into the Phase 0 category as they may have a superior technology and need to eventually enter the world of alliances. Millennium Pharmaceuticals is an interesting example in that over the past seven years it has formed many alliances with large pharmaceutical companies sporting some of the largest financial deals in the industry. One of the key capabilities Millennium has been successful with is 'managing up', whereby it develops the capabilities of better managing the big pharma alliances and preserving the rights to its intellectual property.
The questions you need to answer are: Where does your company's alliance capability lie, what are your strengths and where do you need to focus your development efforts?
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