Rarely does a day pass when the front pages of the world’s financial publications don’t trumpet the latest corporate alliance. Over the past decade, corporations have transformed themselves from 100 percent owners of their own assets into fuzzy-walled organizations linked with dozens of partners in strategic alliances such as joint ventures, cross-selling agreements, and patent-licensing deals. Alliances are particularly crucial to e-businesses that are in a hurry to access or leverage content, customers, or technology, as well as to all businesses that need to mitigate risk while pursuing growth options.
Our earlier research indicated that alliances have a long-term success rate of about 50 percent, measured in strategic and financial terms.1 Since the long-term success factors for alliances are well known, smart managers can improve the odds. Nonetheless, the stakes have risen for companies entering into alliances. Besides focusing more and more on short-term performance, investors and analysts are closely watching alliance announcements. Managers should therefore be asking new questions: Do alliance announcements affect share prices? Are these effects correlated with ultimate success? Most important, how can you tell when to use alliances instead of acquisitions and when to use certain deal structures and not others?
To answer...