chapter  5
22 Pages

Alliance Design

The problem of how alliance partners can exercise suffi cient control over the direction of their alliance is well recognized. In the alliance design stage, partner fi rms confront the challenge of designing an alliance structure that provides them with suffi cient control to realize their objectives. Insuffi cient control limits a partner’s ability not only to protect but also to use the resources it provides effi ciently. Alliance partners thus are motivated to create an alliance design that fulfi ls the following objectives: to increase the likelihood of attaining individual and collective objectives; to create safeguards to reduce the impact of potential exchange hazards; and to increase their ability to respond to unforeseen circumstances. The guiding questions for this stage thus refer to the most suitable governance form, the required contractual provisions and the supplementary management controls to be installed. To this end, managers must understand the primary function of governance forms (shown in the fi rst section), alliance contracts (second section), and management control (third section). In addition, the following two sections discuss how these design elements interrelate, and provide a systematic, fi ve-step framework to assist alliance managers in their alliance design decisions. Our fi nal two sections conclude the chapter with a summary and a case illustration.