Balancing control and trust in alliances
Trust is one of the most important components of a successful alliance. It is also one of the most difficult aspects of the partnership to get back into balance when the alliance starts to go off the rails.
So we were interested to see an article published in August 2007 by the Association of Strategic Alliance Professionals and titled Alliance Governance: Balancing Control, Trust, and Risk. The authors of the article were Ard-Pieter de Man and Nadine Roijakkers. The article points to two contrasting perspectives on alliance management. The first views alliance partners as potential opportunists who could cheat the other and therefore need careful control through detailed contracts and strict rules agreed between the partners in order to succeed. The second promotes the idea that the creation and exploitation of trust is critical to successful alliances. From this perspective the natural motivation of each partner to make the alliance work lessens the potential for opportunistic behaviour from each side and so reduces the need for strong formal controls.
The authors argue that the degree to which control or trust benefit the alliance hinges on the context in which the alliance is set up and the risks it faces in terms of relationships and performance. 'Relational risk' is defined by the authors as the extent to which partners might deceive each other. 'Performance risk' is defined as the degree to which the business objectives of the alliance can be achieved. The authors argue that trust is more important where the business environment is unstable and the performance risks are high. In this situation formal control agreements can be overtaken by changing events and trust increases in importance. Trust is essential to each partner knowing the other side will respond appropriately and without prolonged negotiations to the shifting circumstances. Formal control they assert is more suitable in situations of low performance risks and a stable environment.
Overall the authors argue that companies need to make a careful assessment when deciding to rely on either control or trust approaches in their alliance governance structure and that no one size fits all. In some cases the alliance will benefit from a combination of both approaches rather than a reliance on one or the other. One approach does not necessarily undermine the other. According to the authors, the use of formal controls with clear and detailed agreements, for example, can increase each party's faith in the alliance.
The authors use three case studies to support their arguments, one from the Dutch financial sector, one from the Dutch coffee sector and one from the Dutch retail sector. Case studies have become common in business schools in order to teach MBA students. However, as the authors acknowledge, the difficulty with cases studies is the question as to the validity or otherwise of extrapolating from individual case studies to generalised hypotheses that hold true in most circumstances. To put it at its most simply, how do we know that what holds true in a particular situation in the Dutch coffee sector is also true in other situations in the Dutch coffee sector much less in the Japanese biotechnology sector or the Tiawanese semi-conductor industry?
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