Strategic Alliances: How To Manage, How To Measure

Alliances are easy to form but tough to manage and measure. Companies that score the biggest successes know how to select the best metrics and update them regularly.

Strategic alliances are a vibrant feature of the corporate landscape, and one that recently has seen a surge in popularity. By creating formal partnerships, companies can quickly acquire product development capabilities and marketing expertise that would otherwise require years of effort and considerable expense.

At the same time, more and more organizations are realizing that alliances do not automatically succeed or create value. Forging the partnership is the easy part; managing it and measuring its success are much harder tasks. "Although it is not that difficult to make a deal, it is difficult to develop performance measures for a deal that is not a full-blown acquisition," says Larraine Segil, Los Angeles-based partner with relationship management consulting firm Vantage Partners and author of "Measuring the Value of Partnering: How To Use Metrics To Plan, Develop and Implement Successful Alliances" (Amacom, 2004).

Developing metrics to quantify the benefits that a partnership generates is a complex challenge, but it's one that a growing number of alliance-savvy organizations are meeting. Many companies are turning to a balanced scorecard that measures the overall quality of the working relationship, its strategic value, and its operational effectiveness as well as its financial performance.

"Metrics do not all have to be quantitative and financially oriented," says Segil. In fact, an overreliance on financial metrics is shortsighted, she notes. For example, a company may need to keep an underperforming alliance in place for strategic reasons, such as maintaining a competitive edge in a new market.