Key Performance Indicators in Alliances

Key Performance Indicators in Alliances

In today’s business world, successful organizations tend to refocus their resources on core business activities and markets. However, paying much attention solely to business activities poses serious risks; companies become reluctant to invest in new products, processes, or markets, thereby slumping revenue and profitability. Even so, forward-looking organizations often establish alliances to prevent this fallout. The design and negotiation of an alliance form an essential part of the collaboration process. Negotiating key performance indicators (KPIs) sets the tone of the future relationship and establishes a win-win arrangement. This paper evaluates the importance of negotiating KPIs with alliance partners and analyzes the effects of foundation accords, governance accords, and change accords on the success of a strategic alliance.

Q1: Importance of Negotiating KPIs with Alliance Partners

The importance of KPIs in alliance agreements

Negotiating KPIs with strategic alliance partners creates a solid foundation for the partnership and a positive atmosphere. Studies show that negotiations precede effective collaboration between partner firms (Gibbs & Humphries, 2009). KPIs are critical elements of information required to determine and explain how an alliance will progress to meet business and operational plans. By helping the partnering companies understand if they are headed in the right direction, the successful negotiation of KPIs is an excellent vehicle for developing unique insights into how both parties do their business. Thus, negotiating KPIs helps strategic partners gauge their overall long-term performance.

How KPIs alleviate potential problems with alliance partners

A clear definition of KPIs during the negotiation process helps eliminate tension by setting out the same measure of success. Strategic collaborations are inevitably plagued with power issues and heightened sensitivity to misunderstanding (Gibbs & Humphries, 2009). Differences often emerge during partnership negotiation, making partners disagree on various issues, including financial flows or decision rights. Nevertheless, identifying KPIs during negotiations is the best way to ensure every company understands its partner’s business goals. Therefore, KIPS most effectively mitigates the dilemma resulting from negotiation by laying the important metrics for optimizing long-term strategic objectives.

Several barriers usually get in the way during the negotiation of the right KPIs. As Peng (2011) puts it, strategic collaborations most commonly involve partners with different national and corporate cultures and, in some situations, ultimate objectives. This state of affairs suggests that a conflict is an inevitable part of the negotiation. Notably, the disagreements range from ownership and control, structure and governance to establishing performance objectives (Peng, 2011). In the first case, the continuation of a joint venture affair is highly influenced by who controls key decisions. Similarly, governance and control may also inhibit successful negotiation, especially when no alliance structure addresses roles, responsibilities, and clear lines of authority. Establishing performance objectives is also a potential source of disagreement between partners. Ideally, conducting a performance review that lacks pre-determined benchmarks can impede making necessary readjustments to an alliance contract.

Addressing these barriers requires both parties to determine who is better positioned to contribute to critical areas of the alliance’s success. As such, the decision-making structure ought to be efficient and take into account collaboration and synergistic issues (Peng, 2011). In this way, each partner will be allocated their responsibilities accordingly. As such, the issues of ownership and control, structure and governance, and establishing performance objectives should be a strategic consideration when forming an alliance structure.

Q2: The Effects of Foundation accords, governance accords, and Change Accords on the Success of a Strategic Alliance

Driving the accords based on the overall strategy

An organization’s strategic objective provides a critical part of the foundation on which the strategic alliance is built. Basing the accords on the overall strategic objective provides the mechanisms for implementing the strategy of the relationship. In addition, the objectives provide the management with the means of evaluating the performance of the alliance in terms of achieving the pre-set objectives. The main benefit of implementing the accords based on the overall strategy is that it is relevant for understanding and implementing the partnership. Thus, an organization’s overall accord should be well-written and set out the terms, purpose, obligations, and warranties of the relationship.

Potential risks and benefits of each accord

The accords on which the strategic alliance is based have potential risks and positive outcomes. In the case of the foundation accord, the most significant risk is the issue of equity involvement. Numerous alliance agreements often operate with equity participation, allowing control of ventures that are central to companies’ long-term competitive success. An equity-based alliance needs decision-making that is hinged on preserving agility and preserving control. Even so, the foundation accord can provide the structure for the interaction among partners if well established. In the same vein, governance accord exhibits the risk of tensions between partners in terms of hierarchical control. Usually, the elements in the governance accord vary per the expected coordination costs and interdependence of the relationship (Teng & Das, 2008). This means that a lack of a proper arrangement control system can lead to tensions between partners. Regardless, the governance accord provides clear lines of authority, decision-making, and communication, enhancing positive interaction between partners and the chances of success (Teng & Das, 2008). As with other accords, change accords are also associated with risks and benefits. In the first case, there is a likelihood of relational risk- the risk of opportunistic behavior of one of the firms having a negative impact on the other. On the flip side, change accords seek to provide opportunities in the form of sharing the risk of a new venture. For example, companies will implement change accords to fill gaps in resources such as skills to their capabilities. Therefore, a strategic alliance must be managed to minimize risks and realize maximum benefits.

I consider governance accord the most important for the long-term success of the strategic alliance. Virtually all stages of strategic alliance depend on their government structures (Chae, 2009). Throughout the beginning, ending, and ongoing partnership process, the governance structure can influence the willingness of both parties to cooperate and leverage their investments and reduce information asymmetry. In this way, governance accords confront and address complex issues and lack of autonomy.

References

Chae, B. (2009). Developing key performance indicators for supply chain: An industry perspective. Supply Chain Management: An International Journal, 14(6), 422-428. https://doi.org/10.1108/13598540910995192

Gibbs, R., & Humphries, A. (2009). Strategic alliances& marketing partnerships Gaining competitive advantage through collaboration and partnering. Kogan Page.

Peng, T. (2011). Resource fit in inter‐firm partnership: Intellectual capital perspective. Journal of Intellectual Capital, 12(1), 20-42. https://doi.org/10.1108/14691931111097908

Teng, B., & Das, T. (2008). Governance structure choice in strategic alliances. Management Decision, 46(5), 725-742. https://doi.org/10.1108/00251740810873482

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Key Performance Indicators in Alliances

To complete this Assignment, respond to the following in a 3- to 4-page paper:

• Evaluate the importance of negotiating key performance indicators with alliance partners.
  • Why are KPIs crucial to the success of alliance agreements?
  • Describe how KPIs alleviate potential problems with alliance partners.
  • From your research on negotiating KPIs, what types of barriers to agreements often get in the way?
    • How can such barriers be removed or avoided?
• Analyze the effects of foundation accords, governance accords, and change accords on the success of a strategic alliance.
  • How should the organization’s overall strategy drive the accords?
  • What are the potential risks and benefits associated with each type of accord on the success of strategic alliances?
  • Which type of accord do you consider most important for the long-term success of the strategic alliance? Why?