Wharton@Work

February 2012 | Strategy

Choosing the Right Partner for the Right Reasons

Japan's Takeda Pharmaceutical maintains two dozen partnerships with foreign and domestic organizations and companies. These partnerships allow Takeda to share the cost and risks associated with working on multiple research projects, developing and testing new drugs, and evaluating the efficacy of existing drugs.

In Australia, GE has partnered with the Commonwealth Scientific and Industrial Research Organisation (CSIRO) to jointly invest in areas of global challenge. Their efforts to drive innovation and develop new strategic options involve, for example, water conservation and cleaner technologies for the aviation and energy industries.

The multi-national networking company Cisco has more than a dozen strategic partners, including Fujitsu, which helps extend the company's reach and scale in Asia and Europe. The eight-year alliance has recently been expanded to focus on unified communications in the Japanese market.

Takeda, GE, and Cisco illustrate three very different models for partnerships, each with unique strategic goals. In terms identified by Wharton management professor Harbir Singh, they represent three strategies: Window, Option, and Position. (See this month's Nano Tool to help determine which strategy best fits your situation.)

In the four-day program Strategic Alliances: Creating Growth Opportunities, Singh explains that finding the right partner begins with an understanding of what you want from the partnership: "If you're in an environment of high uncertainty, with multiple potential opportunities, you want to partner with an organization that is already committed to one of those opportunities. The Window Strategy allows you to assess in real-time the potential of that option without risking all of your own resources so narrowly. Knowledge acquisition is the primary reason for entering this type of partnership.

"The Option Strategy is appropriate as uncertainty resolves. The goal is to create strategic options, again without limiting flexibility by committing all of your own resources to one or a limited number of possibilities. When there are relatively low levels of uncertainty, firms need to assemble the most effective configuration of assets and capabilities to compete effectively. At this stage, a Positioning Strategy is appropriate as you attempt to create scale- or scope-based advantages by combining forces with a firm or firms with the best capabilities in the industry."

Choosing Complementary Partners

Once you've determined your goals and strategy for an alliance, the focus turns to identification of a suitable partner. As faculty director of Strategic Alliances, Singh explains what to look for. When choosing a partner, he says "complementarity," both in terms of assets and organization, is critical. "The greater the complementarity of your assets, the greater the returns when combined in a partnership. This is especially important when choosing a partner as part of an Options strategy. The key input in this situation is the information you gather about potential partners. You need the ability to assess and predict potential value, and complementarity of the resources of alliance targets is critical."

But resource complementarity isn't enough. "To access the benefits of complementary resources, you need compatibility in decision processes, information and control systems, and culture. The potential competitive advantage of combined resources can only be realized if the firms' systems and cultures are compatible enough to facilitate coordinated action."

Optimally, Singh notes, "Each partner brings distinctive resources that, when combined, result in a synergistic effect. The combination of resources is more valuable, rare, and difficult-to-imitate than the sum of the individual resources. When alliances are based on complementarity of resources and culture, they can consequently produce stronger competitive positions than those achievable by either partner individually."