Wharton@Work

February 2023 | Strategy

What’s Stopping Value Creation? Blame Your Thinking

It felt appropriate a decade ago to characterize the business climate as VUCA (volatile, uncertain, complex, and ambiguous), borrowing the U.S. military acronym coined to describe an intense, chaotic “fog of war” environment. Since then, its relevance has only increased with new and growing financial pressures, stakeholder demands, the global pandemic, exponential technology advancements, and mercurial consumer preferences.

For businesses to remain viable, they must not only meet these challenges but continue to create value. Prashant Kale, an associate professor of strategic management at Rice University and faculty member in Wharton Executive Education’s Managing Strategic Partnerships and Ecosystems program, says that has become increasingly difficult to do alone. Yet while the benefits of collaboration through strategic partnerships are well documented, there are many leaders who continue a “go it alone” strategy. Kale says growth for their companies may depend on shifting three specific beliefs that can make a difference in whether a company rises to meet its challenges or struggles to stay alive:

1. Hyperfocus on Competition. “Many leaders assume the pie is fixed, thinking how can I grab a bigger share?” says Kale. He stresses that leaders who instead focus on how they can collaborate, sharing resources and benefitting from others’ strengths, believe that “by working together, they can increase the size of the pie. And once the pie is increased, eventually each company has to think about its piece of the pie. But if the pie increases, your piece of the pie may still be bigger than going in with a competitor mindset.”Companies may be willing to let go of this belief in situations where needed capabilities are available from other firms. Why allocate resources to developing a technology platform, for example, when you could partner with a firm that has already done so? Such a partnership allows you to use the platform to create greater value, frees up resources for other ventures, and provides revenue to the company providing the platform. Kale cites another example: “The success of the Pfizer-BioNTech vaccine was an alliance. Pfizer had a challenge of distributing the vaccines, because in many countries they just did not know how to get it to the last mile. So, they created a global alliance with logistics company UPS.”
2. Need for Control/Lack of Trust. “When you're only focusing on competitive advantage, the CEO and senior leaders are most comfortable controlling all the decisions and how things happen,” says Kale. “They may also assume that others can't be trusted. But the minute you collaborate, you have to be willing to give up some control, putting your trust in others, and that doesn't come easily to some.” It’s good to be reminded that even military leaders, who are hyper-focused on control, benefit from giving some of it up. When he was leading the Joint Special Operations Command Task Force in Iraq, General Stanley McChrystal found that his need to approve every major decision was a tactical liability. Superior manpower, firepower, and other resources also required decentralizing decision making to succeed.
3. Knowing When to Start — and When to Quit. Kale says the final mindset shift that can help lead to successful partnerships is, paradoxically, knowing when to end a partnership or when some other arrangement makes more sense. “Some of the participants in the Managing Strategic Partnerships and Ecosystems program, for example, are only focused on alliances. Because they're in that role, they feel that that's what they always should do. We show them that partnering is not the only way to go. There are times when you should do it yourself, there are times when you should partner, and there are times when you should acquire the other company. You need to keep these alternatives in mind. Sometimes the outcome of a partnership is poor, not because you managed it poorly, but because it should have been an acquisition instead of an alliance. Many companies do a relatively good job of forming alliances. Very few companies do a good enough job of terminating them, letting them continue to consume valuable resources without adding a lot of value. We encourage them to think about creating a mechanism in their company where you review those partnerships regularly, asking whether there is still a business case left for them or if they have reached their natural conclusion. Adding value through strategic partnerships depends on knowing when to end them.”