In 1971, General Motors bought 34 percent of Isuzu, then a producer of small trucks, marking the beginning of this corporate giant’s journey into alliances with a wide range of companies, including. Toyota, Suzuki, and Daewoo, among others. Why would such a powerful company take down its corporate walls and expose its own organizational practices and strategies to its competitors?
The answer, according to Joseph Badaracco in this pathbreaking study is that corporations can create strategic alliances to capitalze on knowledge: migratory knowledge', which can be transferred easily between people or organizations in a formula or product, and embidded knowledge, which defines how a particular company does business. In today’s business environment, companies need to utilize both types of knowledge to sustain their competitive advantage.
The formidable time and startup costs needed to develop new products and enter new markets are forcing companies to enter into strategic alliances. Badaracco examines in detail the wide variety of alliances created by two firms-General Motors and IBM-to better understand how partnerships helped each to achieve its long-term objectives and meet the competitive demands of its industry. He shows the effect that these alliances have had on the two companies' strategies and needs for knowledge.
Badaracco argues that management should not only use alliances reactively to match a competitor's products or plug gaps in its own product line. The long-term benefits created by alliances lie in opportunities to learn about a partner's manufacturing processes, or distributor relationships, or manigement and employee training practices, or other sources of competitive advantage. Absorbing this embedded knowledge offers management a way to change its core operations to strengthen its organization.
The Knowledge Link provides specific guidance on how to manage alliances successfully and describes some of the conditions needed for them to flourish: managers must have a clear, strategic understanding of their company's current and future capabilities; they must carefully scrutinize the values, commitment, and capabilities of prospective partners; and they must clearly understand the risks involved. Furthermore, alliances must be structured and managed likee separate companies; core operations and traditional organizations must be changed so that they are open to learning from alliances; partners in an alliance must come to trust each other; and alliances must be led, not just managed.
Badaracco shows that global flows of knowledge have created a new corporation which encompasses not only the traditional firm, but also the web of relationships that surround and enmesh it. The challenge for today's manager is to balance the opportunities offered by open boundaries and free-flowing information against the need to protect the corporation's unique capabilities. Managing strategic alliances effectively will be a major factor in determining corporate success in the years ahead.