Business Insight (A Special Report); Preparing for the Exit: When forming a business alliance, don’t ignore one of the most crucial ingredients: how to break up Ranjay Gulati, Maxim Sytch and Parth Mehrotra . Wall Street Journal , Eastern edition; New York, N.Y.
[New York, N.Y]. 03 Mar 2007: R.11.
ProQuest document link
ABSTRACT (ABSTRACT) The lack of an agreement is compounded by the fact that when tensions arise between partners, the alliance’s
managers may be reluctant to alert their superiors back at the partner companies. They fear they may be blamed
for the alliance’s failure, which would hurt their own careers. So instead, the managers focus their tensions on their
alliance counterparts. The typical outcome: a dysfunctional strategic alliance marked by deep animosity between
alliance managers. Any ensuing discussions about possible alliance termination are likely to be emotionally
charged and ineffective.
Second, a core team of disengagement managers should be formed, drawing on managers not only from the
parent companies but from the alliance itself. When a team comprises only managers from the parent companies,
attorneys get involved too early and negotiations tend to focus solely on the observance of rights to stocks; this
tends to alienate alliance managers and to hurt not only what remaining value the alliance has, but the flows of the
partner companies as well. Additionally, the smartest companies assign the supervision of disengagements to
senior corporate personnel at the parent companies who weren’t originally linked to the alliance. Such supervision
not only enforces clear accountability and allows for greater impartiality, it enables alliance managers to better
clear organizational and legal roadblocks during the disengagement process.
When a partnership has to be dissolved, a strong communication plan is key. In our view, a number of companies
have learned that mishandling communications during a break-up can damage a company’s reputation and
significantly hinder its chances of finding future partners. During disengagement, it’s important to avoid offending
partners and to maintain your own company’s reputation. FULL TEXT A WORD OF ADVICE for companies thinking about forming a business alliance: Before launching any partnership,
make sure both parties agree on how you’ll know, and what you’ll do, when it’s over.
There is no doubt this can be challenging. Like a prenuptial agreement, in which a couple discusses divorce
options on their way to the altar, negotiating exit options while still at the formation stage of an alliance seems
almost counter to human nature. For one thing, neither partner wants to admit that things could go awry. What’s
more, there’s an eagerness to get the deal done — and a fear that raising the worst-case scenario will undermine
the euphoria and trust that often accompany a new deal.
But partners ignore the issue at their own risk. Discussing the trigger points for exiting, as well as the
disengagement process itself, while still in the negotiation stage is paramount for an effective partnership. In
many cases, exit planning may actually enhance the alliance’s performance and longevity.
Interviews with managers who have overseen alliances reveal a pattern that sometimes emerges when a
partnership with no adequate separation agreement becomes strained: Partner A grows dissatisfied with the
venture and seeks an exit, but can’t find any easy options; Partner A then attempts to covertly appropriate as much
value as possible from the alliance before the venture goes completely sour, while creating a paper and action trail
aimed at placing the blame for the failed venture on Partner B; an angry Partner B discovers the maneuvers, and
takes countermoves.
The lack of an agreement is compounded by the fact that when tensions arise between partners, the alliance’s
managers may be reluctant to alert their superiors back at the partner companies. They fear they may be blamed
for the alliance’s failure, which would hurt their own careers. So instead, the managers focus their tensions on their
alliance counterparts. The typical outcome: a dysfunctional strategic alliance marked by deep animosity between
alliance managers. Any ensuing discussions about possible alliance termination are likely to be emotionally
charged and ineffective.
So, what kind of exit-plan pact works best? One that clearly specifies the point of disengagement, tells both parties
what their subsequent rights and responsibilities are, and provides a clear and effective procedural map that
