How to Improve the Performance of Collaborations, Joint Ventures, and Strategic Alliances: The Shared Risk Management Handbook
In this incredibly practical handbook, Patrick Ow (of PracticalRiskTraining.com) gives an amazing amount of how-to detail to implement the appropriate shared risk management strategies and processes to effectively manage shared risks in collaborations, joint ventures, and strategic alliances, to increase the likelihood and extent of their success.
Given that it has been estimated that as many as 40% to 60% of joint ventures have underperformed or failed outright, this book sets out all the critical success factors needed to overcome failures in collaborations, especially from a risk management perspective. The goal of risk management is to increase the likelihood and extent of the collaboration’s success.
The key to collaboration success is that all interactions and integrations must be conducted within one mutually agreed common governance structure that is led by one accountable person and where the collaboration’s shared risk management framework integrates and interoperate with all partners’ enterprise risk management frameworks as a collective whole.
It is only through the adoption of these common inter-organizational risk management processes in all partners’ risk management plans that processes and plans in the collaboration can fully interoperate and integrate across organizational boundaries.
This is where the shared risk management, enhanced and strengthen by individual partners’ enterprise risk management, can effectively remove any execution barriers or risks to the achievement of collaboration’s goals.
There are three critical mistakes in collaborative endeavors:
1. They do not consider the strategic role of collaborations but see it only as a tactic for reducing costs. As a result, their efforts are misaligned with their corporate strategy.
2. They do not organize effectively for collaborations internally and externally.
Instead, they treat partners like suppliers of parts or raw materials and manage them using a procurement approach rather than that of a long-term (and sustainable) marriage relationship between two people.
3. They do not make long-term investments to develop collaborative and relationship capabilities and capacities.
Instead, they assume that their existing governance arrangements, staffing, and processes can handle the challenges, risks, and controls in collaborations.
By reading this book, you will learn how to:
1. Identify key elements of a successful collaboration.
2. Develop the right foundations for successful collaborations to thrive.
3. Implement the right elements for collaborations to operate.
4. Manage shared risks and issues in the collaboration.
The book also covers issues related to the management of collaboration risk in the public sector, which is relevant for private and public partnerships.
This book aims to improve the success rate of collaborations and overcome known challenges in collaborations.
Contents
Preface
Successful collaborations
Shared risk management
Managing collaboration risk in the public sector
Why read this book?
Collaboration (or alliances and partnerships) and joint ventures are working practices whereby organizations, or partners, work together for a common purpose to achieve business benefit. It enables partners to work together to achieve a defined and common business purpose.
A joint venture is a business entity created by two or more parties, generally characterized by shared ownership, shared returns and risks, and shared governance. Organizations typically pursue joint ventures for one of four reasons – to access a new market, particularly emerging markets; to gain scale efficiencies by combining assets and operations; to share risk for major investments or projects; or to access skills and capabilities.
Collaborations are a lot like a marriage. Many have no formal contracts, no buying, and selling of equity, unlike joint ventures. There are few, if any, rigidly binding provisions. It is a loose, evolving kind of relationship. There may be guidelines and expectations, but no one expects a precise, measured return on the initial commitment.
Collaboration relies on openness and knowledge sharing but also some level of focus and accountability on the part of the partnering organizations.
Partners bring a faith that they will be stronger together than either would be separate. Each has unique skills and functional abilities the other lacks.
As the saying goes, “The whole is greater than the sum of its parts.”
But there is always a caveat. This is where the analogy of the car is useful. When deciding on what car to buy, you look at the performance of the vehicle, how it fits in with your lifestyle, and the aesthetics, color shape, etc. What you don’t consider is what disc brakes have been used or how well built the components of the chassis and engines are!
You assume the manufacturer will have done this and spent time and resources in testing all the available solutions and arriving at the perfect combination for their vehicle. It’s not unreasonable as they are after all delivering a finished product that often has a high value attached to it.
Collaboration is similar in that it’s the “Sum of its parts” is working together to achieve a mutual goal.
However, do you take the time and give the necessary resources to consider how the components of disparate systems will work together?
If you strive to create a high-performing collaboration to achieve a mutual goal or business benefit, then you need to agree on how each partner will communicate with each other and how they all function collectively in unity.
This is a very complex problem that can be solved. But there needs a shared risk management framework in place to allow for the specification, management, and integration to be determined and implemented.
Rather than disparate silos of excellence operating individually, integrate and manage all individual components as one system. Agreed-upon common protocols and business rules, and individual organizational policies and procedures must all be interoperable with each other and operate as one unified and integrated system.
All interactions and integrations must be conducted within one mutually agreed common governance structure. And there will only be one accountable person (or partner) for the achievement (or even non-achievement) of the common goals.
Unfortunately, most organizations are not designed for collaboration. Executives do not appreciate what collaborative working truly entails. They assume that their existing processes, infrastructure, and management practices are suitable for collaboration.
There are three critical mistakes in collaborative endeavors:
1. Organizations do not consider the strategic role of collaborations.
2. Organisations do not organize effectively for alliances, internally and externally.
3. Organisations do not make long-term investments to develop collaborative and relationship capabilities and capacities.
The idea of ‘sharing’ risks or working on common or systemic risks with other organizations, even in the context of collaboration, can be very unfamiliar territory for many executives.
Shared risks in collaboration are generally defined within the individual operations of each organization. These risks were not ‘shared’ but ‘divided’ amongst partners in very specific ways – for example, in terms of the role, function, or service.
Therefore, the risk management approaches and systems used by partners in collaborations have been based on business models that have failed to address shared, or systemic, or whole of industry risks. They reinforce blame avoidance and risk shifting to weaker partners, thus reducing incentives for collaborative and integrated service provisioning.
There are two key points to note about creating successful and productive collaborations:
1. All collaborations must have a formal governing body that provides the required governance structure, arrangements, and oversight.
2. All risk management frameworks must integrate and interoperate with each other.
The competitive environment of business has changed remarkably, characterized by increasing intensity and a more integrated global market. In dealing with these growing challenges as well as opportunities, many organizations are finding themselves unable to cope with the traditional arsenal of competitive strategies, which emphasize maximum exploitation of an individual organization’s competitive advantage, competence, and capability.
One way to survive this mounting competition, as many organizations are discovering, is to cooperate and collaborate with other organizations to create a collaborative (or strategic) advantage.
When organizations form an alliance to achieve common goals, the alliance’s effectiveness can be greater than the sum of each organization’s effectiveness and competitive advantage.
Collaborations can enable organizations to realize their growth potential and performance quicker than if pursuing an objective alone. Dependencies, risks (known unknowns), and issues (known knowns) between partners must be actively managed to ensure that individual partners can achieve their organizational strategic objectives through the achievement of the collective goals.
Collaborations are inherently riskier than other activities undertaken by an organization. This may be true because of each partner:
1. Exercises little control, influence, or authority over the actions of other partners.
2. May pursue different and sometimes conflicting intent, interests, and objectives.
3. May not know each other very well or may not have worked with each other in the past.
Shared risks within collaborative pursuits can be actively managed when there is appropriate shared risk management in place. Shared risk management builds upon the organizational risk management practices where it manages shared risks.
