Leveraging knowledge management across strategic alliances

Alliance building has several stages, and the manager who leverages his organization's knowledge through each stage creates the foundation for a successful partnership. Introduction With an annual growth rate of 25 per cent and a projected value of US$40 trillion by the year 2004, there is little doubt that alliances will have a major impact on management in the 21st century. The " make versus buy " decision that once confronted decision makers has expanded and is now a more complex " make versus buy versus partner " decision. Alliance managers must make difficult decisions about when to partner and with whom, as well as how to structure and manage the partnership. Managers who can leverage information and knowledge across each stage of the alliance process will find that a knowledge-based approach is critical to the success of any partnership. In this article, we discuss the importance and effectiveness of sound knowledge management practices in the context of an alliance. Any discussion of a knowledge-based approach to alliance management must be based on several truths. • If managed correctly, alliances can significantly increase a company's financial returns. As a recent study pointed out, companies expect that by 2003, 35 per cent of their revenues will come from alliances, up from 21 per cent in 1998 and 15 per cent in 1995. 1,2 But alliances do more than contribute to a firm's bottom line. Firms can no longer develop all the resources, technologies and products to compete in today's dynamic marketplace, and so many of those firms use alliances to acquire the critical skills, knowledge and capabilities that they lack. • Companies form R&D alliances, not simply to reach short-term financial milestones, but to observe, learn and internalize the know-how of their partners. In U.S.-Japanese alliances in the past, for example, Japanese companies saw these partnerships as a way to learn from their partner, while their U.S. counterparts used these alliances as a substitute for more competitive skills, ultimately resulting in an erosion of their own internal skills. 3 Therefore, with companies that look on alliances as a way of learning from their partners, practices that enable knowledge sharing, creation, dissemination and internalization become critical. • An alliance knowledge management capability is both an important component of alliance success and a differentiating factor. Managing knowledge resources in an alliance is extremely challenging, and it is a primary reason for high failure …