Category Archives: alliance portfolios

Philips’ Alliances Will Save Your Health (and Money)

We all know that alliances with customers, competitors, and suppliers are important to any company’s ability to compete. As I write in my latest post for Harvard Business Review, that ability is compromised by the way we manage those relationships: all too often, each alliance is “owned” by one team or business unit. Thus, companies often miss out on opportunities for innovation that would result from transferring ideas and resources from small silos to other aspects of the business.

I set out in my book, Network Advantage: How to Unlock Value from Your Alliances and Partnerships, that a more holistic approach to managing alliances allows companies to create innovative new lines of business. A recent collaboration between customer relationship management and analytics company Salesforce.com and Dutch electronics giant Philips provides a case in point.

The collaboration between two companies began as a simple buyer-supplier deal: Philips used Salesforce software to enhance its customer relationships. But somewhere along the line, executives in these two companies started asking: if Salesforce knows how to manage CRM data, can it also manage the clinical data from some 190 million medical patients that are treated each year with Philips-made equipment?

The two partners have decided to build a platform to connect healthcare providers, insurance companies, and patients to deliver clinical monitoring solutions. The Philips Digital Healthsuite Platform, as it is called, will collect and analyze data drawn from medical devices to enhance clinical decision making by professionals and allow patients to take a more active role in managing their personal health.

As a first move, the partners have created two applications — “eCareCompanion” and “eCareCoordinator.” The eCareCompanion is installed on a patient’s smartphone (or tablet) and connects to their health monitoring equipment, such as weight scales, pill dispenser units, blood oxygen measurement devices, and thermometers. Imagine John, a patient with obstructive pulmonary disease, often caused by smoking. John lives at home. To monitor his condition, John’s weight, blood oxygen, and body temperature data are constantly uploaded to the platform. The eCareCoordinator then analyzes the data feed from the devices worn by the patients. If the data pattern from a particular patient becomes worrisome, the eCareCoordinator can inform a nurse, relative, or doctor.

How can Philips and Salesforce persuade hospitals to start using this platform? How can the hospitals be sure the system is reliable and can lead to tangible cost savings? This is where an alliance between Philips and Radboud University Medical Center in the Netherlands comes into play. The two partners work very closely to develop and test new equipment, including the wearable devices that can collect patent data for the Digital Healthsuite Platform. The use of these devices on Radboud’s patients helps Philips develop a business case for using them in other hospitals. Furthermore, in the process of building the wearable devices, developing the apps, and analyzing patient data, Philips, Salesforce.com, and Radboud develop valuable know-how to share with future partners who want to build their own apps or devices.

This innovation was made possible by the way Philips manages its alliances. Philips has created an Alliance Management office, made up of a small team of professionals who help Philips executives run individual alliances. The team helped negotiate the contracts with Salesforce and with Radboud Medical Center, obtained agreement on the key performance indicators, and developed tools to evaluate the partners’ perspectives on the evolution of the alliance. They also manage regular meetings in which the Philips executives in charge of the Salesforce.com alliance can learn about what is going on in the alliance with Radboud and vice versa. This helps build multi-billion market opportunities across the three partnerships.

There are two lessons here for your company. First, get more out of your alliances as drivers by thinking of them as a network. And second, build a team inside your company to manage this network, especially where knowledge and resources overlap. There is huge potential in collaborating with customers, suppliers, or even competitors.

Collaborate to Innovate: Learning to Unlock Value from Your Alliances and Partnerships

How can you achieve competitive advantage using your alliances and partnerships?

What is “Network Advantage” and how can your company benefit from its collaborations with customers, suppliers and competitors?

How do giants like Philips and Samsung achieve profitable growth using their alliances?

I recently gave a 7 min TEDx-style talk for INSEAD Alumni reunion to answer these questions.

Collaborate to Innovate: Learning to Unlock Value from Your Alliances and Partnerships

How can you achieve competitive advantage using your alliances and partnerships?

What is “Network Advantage” and how can your company benefit from its collaborations with customers, suppliers and competitors?

How do giants like Philips and Samsung achieve profitable growth using their alliances?

I recently gave a 7 min TEDx-style talk for INSEAD Alumni reunion to answer these questions.

Make Wine with Me: How to Use Small Wins to Build Trust Between Partner Companies



Douro Boys is a group of five independent wineries in the Douro River Valley in Portugal that built an alliance network after realizing that they could not compete on their own. The partners act almost as a single firm, sharing knowledge about wine making and markets. Their wines, such as “Quinta do Vallado” or “Niepoort” now routinely get over 90 points by the Wine Spectator and sales have doubled over the last ten years.

As I write in a recent Harvard Business Review blog post, they achieved this through an unusual exercise: the CEOs of the five companies decided to pool a small amount of their best wine to make 500 bottles of a one-off premium wine they called the “Douro Boys Cuvee”. They auctioned the bottles off at Christie’s at an average price of 300 euros, a price that put the Portuguese wine on par with high-end Bordeaux. The success of this small joint project instilled a strong sense of collective achievement among the member companies, which helped them to work on other projects much more effectively.

Douro Boys solved the problem of trust building among alliance partners by achieving a small win, an initiative (or a small number of initiatives) that partners can accomplish within a maximum of twelve (or even six) months after starting collaboration. We are not talking about conquering a new geographical market or investing millions of dollars in joint R&D. A small win can be as simple as winning a new client together or modifying an existing product to serve a small new customer segment.

When I started working on my book Network Advantage: How to Unlock Value from Your Alliances and Partnerships, I was often struck by how little attention alliance partners pay to the importance of small wins.  They tend to focus instead on mobilizing their stakeholders around big, audacious goals.

Setting such goals is important, of course, but you first need to develop trust. Otherwise, a partner will not share their knowledge or resources with you. And the small win is the shortest way towards developing trust: it helps partners to learn about one another and develop informal rules of collaboration. This leads to familiarity, familiarity leads to trust, and trust leads to improved information and/or resource sharing.

Here’s another example. N2build is a startup that wants to disrupt the construction industry by using new composite materials. For example, some of the innovative fuselage material in a Boeing Dreamliner could also be used to make wall panels or roofs for houses. The new composites have higher insulation properties, are more resistant to the elements and, after substantial R&D, can cost much less to manufacture than conventional building materials.

N2Build has a large network of R&D alliances: it collaborates with researchers at the Fraunhofer Institute in Germany, Massachusetts Institute of Technology, and INEGI (National Institute of Mechanical Engineering and Industrial Management), the eminent Portuguese research institute.

But researchers are often not the best collaborators: they tend to prefer to work on solving problems within their academic disciplines without engaging in cross-department collaboration. What’s more, institutions like these are accustomed to working with multinational corporations or space agencies rather than startups. INEGI in particular was skeptical of N2build’s ambitious goals. The small, yet decisive win for N2Build was to organize seminars within INEGI that brought together scientists from INEGI’s different departments to discuss the idea of how composite materials can disrupt the construction industry. The researchers later commented that it was extremely unusual — as a matter of fact, a first in INEGI’s 25 years history — to have people from all around the institute together in the same room brainstorming towards a common goal. The event was a turning point for INEGI.  It is now an integral part of N2build’s R&D activities and has opened doors to other scientific collaborations.

Correos, the Spanish postal service operator, uses the same strategy to build partnerships in the e-commerce domain. It collaborated with Luis Krug, a Spanish Internet entrepreneur and now the CEO of Pixmania, to build an e-commerce platform Comandia.com. The goal is to become one of the largest online marketplaces in Spain to connect companies of any kind, including small or very large retailers, to their customers. But before the two companies joined forces to work on Comandia, they started with a small win: collaboration over the Oooferton.com website. This was a discount webshop started by Luis Krug in 2009 on which Correos worked as a logistics partner and had to adapt its logistics chain in order to handle a wide variety of products. The two partners learned a lot about each other and developed trust, which then lead to Comandia, a much more ambitious project in terms of the number of potential sellers and customers.

If your company is planning a strategic alliance, aim for a small win first — this strategy works just as well with customers, suppliers, and competitors.

Alliance Radar: Locate Competitive Advantage Outside of Your Firm’s Value Chain

PSA Peugeot Citroen, or Peugeot for short, is a former French industrial icon. In the past two years, it struggled to escape from € 7 billion losses. A €3 billion capital increase from the French state and Dongfeng, a Chinese carmaker, should help Peugeot secure its future[1]. Will it be bright?  
The alliance between Peugeot and Dongfeng is one of the thousands of alliances that companies formed around the world in the past 10 years. The classic frameworks of strategy analysis, however, don’t provide much guidance for how to extract value from alliances. Take for example a classic “value chain” tool popularized by Michael Porter:

* This figure is borrowed from http://www.insemble.com/software-value-chain.html
As a business educator and a consultant, I love this framework. It helps map activities of a firm and to think about how they relate to its competitive advantage. The weakness of the framework is that it is too much focused inside the firm and is not meant to help executives think about opportunities for value creation by collaborating with other companies.
I recently co-authored a book “Network Advantage: How to Unlock Value from Your Alliances and Partnerships”. In this book we offer advice on how companies can achieve competitive advantage by managing alliances and partnerships with customers, suppliers or competitors.
When I taught this book at INSEAD, a group of Executive Education participants[2] proposed a really cool way to integrate the logic behind the value chain with alliance thinking. This gave birth to a new framework which we call “Alliance Radar.”
The Radar can help you look outside of your firm.  It:
·       links alliances to specific parts of your value chain
·       helps visualize all of the alliances which your company has
·       identifies new opportunities for value creation across different alliances.
Let’s use this tool to compare alliances of Toyota and Peugeot. I picked these examples because I own cars from both car makers. Another reason is that lately Toyota has been much more innovative than Peugeot and this tool can help understand why.
Let’s start by identifying the key areas of two companies’ value chain. For simplicity, let’s assume that they are Production, R&D, Sales and After Sales.  You can draw a radar like this:

Now let’s take all of Toyota’s alliances and classify them into three categories: primarily aimed at cost reduction (red), aimed at innovation and differentiation (green) and those aimed at both cost reduction and differentiation (yellow)[3].


This approach helps us immediately see that most of production alliances are aimed at cost reduction (and efficiencies in general), whereas in other areas Toyota focuses on differentiation of its products.
We can also see areas in which Toyota can create value across different alliances. For example, let’s take three alliances and move them in the “bull’s eye”. Between 2008 and 2013, Toyota worked with Google to optimize search experience for Toyota’s products, collaborated with GM to make Prius in the U.S. and worked with Intel to integrate sensors inside the car with your smartphone. The tool tells us that Toyota can create value by integrating ideas across these three alliances and make a new product “Smart Social Prius”. I am not sure such car exists yet, but it is definitely in the works!

Because of Intel’s sensors, the car will feed information on your Prius driving habits to your social network. Some “friends” (like your parents or your insurance company) might actually want to know how well you are driving. In fact, an insurance company might even lower your premiums for good driving habits and make your insurance really “personal”! And you can even have a contest among your friends who is a safer (or environmentally friendlier) driver.
Now let’s compare Toyota’s Alliance Radar to that of Peugeot :



It is clear that Toyota has a lot more alliances than Peugeot, most of Peugeot’s alliances are aimed at cost reduction and not much on differentiation. Peugeot has a lot fewer opportunities to innovate across alliances. For once, it can work with both Mitsubishi and Changan: make electric cars in Spain (with Mitsubishi) and outfit them with Chinese interiors. Not as exciting as a “Smart Social Prius”? Well, Peugeot’s network of alliances doesn’t allow it to do much better than that because most of the collaborations are focused on cost reduction anyway. If I were to consult to Peugeot, I would have suggested to take a hard look at their alliance network and see if they can collaborate with partners that can provide them with something better than just cost cutting. 


Does your company want to have a big space for innovations a la Toyota? The Alliance Radar tool can help you see the opportunities. Experiment with moving different circles into the bull’s eye and challenge yourself whether you can create value by combining ideas or resources or market access across different partners. If you don’t see exciting opportunities, then maybe you need new alliance partners!
Lately Peugeot has been on an upward swing financially. Sales are looking brighter as the European market recovers[4]. Hopefully the company builds more and varied alliances that will help it not only to cut costs, but also to create innovative solutions by integrating ideas, resources or market access across its customers, suppliers or even competitors.
If you find Alliance Radar tool to be useful for thinking about your company’s alliances or to identify new value creation opportunities (like a Smart Social Prius), share your story with me (shipilov@insead.edu).
If you want to discuss this tool, you can do so in the “Comments” section.




[1] http://tinyurl.com/melxd2a
[2] Thomas Gudbjerg, Arvid Svenni, Haakon Fjeld-Hansen, Finn-Arne Lorentsen and Jarle Steen Stueflotten
[3] The data is on alliances which were formed between 2008 and 2013.
[4] http://tinyurl.com/melxd2a

Can Your Alliance Network Lift a Stealth Bomber Off the Ground?

Does this airplane look familiar?
1940s Stealth Bomber Image
Source: Wikipedia
As I recently wrote on Harvard Business Review blog network, it should, because it’s a predecessor of the famous Stealth Bomber, a prototype completed by Jack Northrop’s company in 1948. In his time, Northrop — the inventor of the flying wing concept — was considered to be the aerospace genius, but he was not able to deliver on his promise to the U.S. military. The revolutionary airplane you never got beyond the prototype.
In 1980, Jack Northrop, then age 85 and confined to a wheelchair, visited a secure facility to see the first B-2 Stealth Bomber — the most advanced military aircraft capable of flying at extremely high altitudes and avoiding radar detection.
1980s Stealth Bomber Image
Source: Wikipedia
Even after 40 years of technological development and use of sophisticated computer design tools, the new bomber looked like a replica of Northrop’s original design for the flying wing. Reportedly, after seeing the aircraft, Northrop said he now realized why God had kept him alive for so long.
So why did one model fail and the other succeed?  Part of the explanation can be found by comparing the different networks of alliances that Northrop’s company formed in the forties and in the seventies.
In 1941, his alliance network looked small and simple hub-and-spoke system. Otis Elevators worked on design, General Manufacturing and Convair provided production facilities. Notice that the partners don’t work with one another and the U.S. Army Corps was actually brought in to arbitrate a dispute between Northrop and Convair.
Northrup's Alliance Network, 1940s
In 1980, the alliance network was more complex and highly integrated.  Network partners worked with one another, jointly negotiating technical standards. Vought Aircraft designed and manufactured the intermediate sections of the wings, General Electric manufactured the engine, whereas Boeing handled fuel systems, weapons delivery and landing gear.   In addition, each main partner formed individual ties with other subcontractors specific to their areas of responsibility.
Northrup's Alliance Network, 1970s
As we discuss in our new book “Network Advantage”, networks like this have two main benefits.  First, alliance partners are more likely to deliver on their promises.  If information flows freely among interconnected partners, how one firm treats a partner can be easily seen by other partners to whom both firms are connected. So if one firm bilks a partner, other partners will see that and will not collaborate with the bilking firm again.
Second, integrated networks facilitate fine-grained information exchanges because multiple partners have relationships where they share a common knowledge base. This shared expertise allows them to dive deep into solving complex problems related to executing or implementing a project.
This is not to say that the hub-and-spoke network of the 1940s doesn’t have its uses. In fact, they are usually more effective at coming up with radical innovation than are complex, integrated networks. In a hub-and-spoke configuration it’s more likely that your partners will know stuff you don’t already know and combining new, distinct ideas from multiple spokes leads to breakthrough innovations for the hub firm.
But Northrop’s hub and spoke portfolio was not useful in 1940s, because he already had an innovative blueprint for the bomber. All Northrop needed to do was to build reliable manufacturing systems that would execute his ideas based on incremental improvements made by multiple partners at the same time.  That scenario called for the integrated network of the 1970s.
The key to choosing between the two types of network is to ask: do you already have a final idea that needs to be implemented with incremental improvements? Is it important that all of your partners trust each other and share knowledge in implementing your idea? If so, then the integrated alliance portfolio is right for you. If you are exploring different options and it is not critical that your partners trust one another, work together to develop and/or implement them, then the hub and spoke portfolio is the best.
You can read more about this and other network-related stories in my new book “Network Advantage: How to Unlock Value from Your Alliances and Partnerships”

Samsung Beats Blackberry in the Global Alliance Game

To the investors of Research in Motion (RIM), the maker of Blackberry, the recent years have been really disappointing. It lost the fight to Apple and Samsung. There may be several explanations to this failure, but one which particularly stands out is the failure of RIM to build a strong alliance network. Alliances and partnerships are the sources of “network advantage”–the ability to improve operating efficiency and increase product innovation by combining resources and knowledge with partners. We discuss how companies can benefit from their relationships with customers, competitors and suppliers in a new e-book “Network Advantage: How to Unlock Value From Your Alliances and Partnerships”. The print version of the book is available from January, 2014.

Let’s look at the alliance network of RIM. This picture is built by looking at the RIM’s alliance announcements between 2008 and 2011. Since these alliances happened a while ago, their positive or negative effects should be felt by now.

RIM is the firm at the centre of the picture and it has 4 (four!) alliance partners only. The alliance with the Royal Bank of Canada and Thompson Reuters (Woodbridge is its parent company) provided venture capital fund services to invest in mobile applications and services in Canada. The alliance with TiVo aimed at providing mobile television entertainment services for BlackBerry users globally. The alliance with NII Holdings Inc was to provide Blackberry Smartphone services in Latin America.


Did these alliances make sense? They sure did. But network advantage doesn’t come to firms who simply build alliances, it comes to firms who build better (and more) alliances than competition. 
Let’s compare RIM’s alliance network to what Samsung is doing with its alliances. Below is the picture of Samsung’s alliance network based on the announcements between 2008 and 2011:

Samsung works with Kia motors to build the car around its Galaxy tab, manufactures 4 G communication infrastructure in Russia, collaborates with Telstra to develop Internet TV for mobile devices, works with Nanosys to build better screens and batteries for smartphones using the nanotechnology. It works with Intel and Juniper on mobile security solutions and works with Korean Telecom (plus Intel) to transmit 3D signal through the mobile grid. It works with Dreamworks and Technicolor (Thompson) to develop 3D movies and viewing equipment. We might soon have 3D video enabled mobile phones!!!… Not to mention the fact that Samsung uses apps from Android platform for its phones. 
In short, the alliance network of Samsung allows it more (and cheaper) opportunities to innovate not only in hardware but also in content.
The sad story of RIM did not begin this year. It began several years ago when it failed to build a big enough network of alliances and partnerships to counter the network of Samsung (and of course the network of Apple). Samsung has excelled at the global alliance game and extracted its Network Advantage. Kudos to Samsung and condolences to RIM. May your company not repeat the RIM’s mistakes!

Do you have “the right” alliance portfolio?

As you can see, the latest post on this platform was a while ago. This is because I was working on a book called “Network Advantage: How to Unlock Value from Your Alliances and Partnerships” which is due to come out in December 2013 (or maybe January 2014).  This is a joint work with Tim Rowley and Henrich Greve. The publisher is Wiley and we wish them well in converting our ideas into a tangible BOOK! 

The idea behind this book is to translate what we (as researchers) know about alliances and partnerships into the language that business executives can understand. Since “knowledge is power” we hope that thoughtful executives, including entrepreneurs, can use our ideas to build better alliances and partnerships. We extensively taught ideas and frameworks from this book in the exec ed classrooms while we were writing this book.

Now the book is in the publisher’s hands, so I have some free time to write the blog posts.

While we were working on the book, Harvard Business Review published an article which is based on one of our ideas. The idea is that all of the firm’s alliances should be managed as a portfolio of relationships. Most firms think of their alliances as one to one deal: a company forms an alliance with partner A, then an alliance with a partner B, then an alliance with a partner C without thinking about how these three alliances fit together.

Based on over 40 years of collective research (remember, we are three authors), we argue that the existence or absence of ties between partners of your firm will make a difference what you can use your alliance portfolio for. Your firm might play a role of a hub among your partners if your partners don’t work with each other. If this is your portfolio, then you are well positioned to produce radical innovations, but you are unlikely to receive much help from these partners in times of need.

Other companies have portfolios with partners that have alliances with each other. If you are such company, then you are best positioned for incremental innovations – and for getting a whole lot of help in times of crisis.

We collected data on alliance portfolios of two well-known companies: Sony and Samsung. Samsung’s alliance portfolio looks something like this. It is a hub and spoke portfolio, where Samsung is a hub and its partners are the spokes:


Sony’s portfolio is different. It looks like this:

 Samsung’s alliances allow it to look to the future: From its vantage point at the hub of a network, Samsung can combine insights from diverse partners such as Dreamworks and Korean Telecom that are doing interesting things with 3D technologies but don’t typically work together. Like Apple, which invented the iPhone after gleaning insights from alliances with Motorola and disparate other partners, Samsung is well positioned to forge seemingly unrelated sets of knowledge into a breakthrough product – perhaps something such as the first handheld device for watching 3D movies without special glasses. Its recent Galaxy S4 mobile phone already includes cutting-edge gesture- and eye-tracking features.
Sony’s network, by contrast, seems more focused on the here-and-now. Its allies, including Sharp and Toshiba, which manufacture its LCD panels, work with one another and know what the other members of Sony’s network are doing. The group is thus more integrated than Samsung’s. Our research shows that such a network can help each partner make incremental technological improvements, but isn’t likely to yield breakthrough innovations.
Integrated networks can be helpful in another way, though. Highly interconnected partners tend to have a lot of trust in one another and are willing to assist in time of need. For example, after the March 11, 2011, earthquake in Japan, customers and suppliers of microchip maker Renesas Electronics, a firm with an integrated network, sent 2,500 of their own workers to help reconstruct a partially destroyed plant and quickly put it back into operation.
Our article describes several factors that affect whether you need a hub and spoke or an integrated alliance portfolio. If you are interested, you can access the full text of the article by clicking here. The text is free :).