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Wedding HR to Strategic Alliances

May 1, 1995
Related Topics: Strategic Planning, Featured Article
You've seen them off the highway. You've probably even fidgeted behind one at the nearest pit stop: The long-haul trucker who's tying up the pay phone. He could be calling home. But most likely he's on hold, awaiting his fleet manager's next road assignment. Wouldn't it be great if we could just eliminate the frustration on his end, the manager's and our own? That's just what J.B. Hunt Transport Services, Inc. and IBM did in 1993. A strategic alliance between the two companies produced the on-board computer—a satellite technology that looks like a cellular phone and simplifies the trucking industry's ability to track and assign its drivers while expanding IBM's commercial market.

In addition, Armonk, New York-based IBM also introduced a new software program called Micromap® to simplify the logistics manager's job by sorting through the difficult process of matching loads to truckers. This enabled the computer to consider more than 90 different assignment possibilities. "[The computers] also give us the ability to communicate back and forth with the drivers every minute and at any place in the world," says Steve Palmer, executive vice president of human resources and risk management for Lowell, Arkansas-based J.B. Hunt. Already, the technology shared through the alliance has reduced the number of driving miles and has contributed to getting employees home on time. Moreover, the on-board computers have helped to reduce fatigue and the number of highway accidents, he says.

Companies are looking for ways to share resources and opportunities.
The strategic alliance between J.B. Hunt and IBM is only one of thousands springing up in the business world every day. One of the most visible partnerships announced recently is the one between Microsoft Corp. and DreamWorks, the entertainment studio founded by producer Steven Spielberg, former Disney executive Jeffrey Katzenberg and music mogul David Geffen. Others include Schering-Plough Corporation and Corvas International; Motorola and various enterprises in China; Amoco and Enron corporations. The list goes on. Today's strategic alliances are cooperative arrangements between two or more companies that want to develop a win-win strategy. Primarily, both sides want to gain access to untapped geographic markets and resources, exercise more control and share risks. They can be created in response to a variety of needs and can take the form of anything from a technology licensing agreement to a full-blown joint venture. Both parties, essentially, want to reduce the time needed to get product to a greater market at the lowest possible costs. According to global management and technology consulting firm Booz Allen & Hamilton, more than 20,000 new alliances were formed between 1987 and 1992. Nearly 6% of the revenue generated from the top 1,000 U.S. firms now comes from alliances. But about 40% of U.S. alliances today are still considered failures because they don't achieve their objectives, says John R. Harbison, vice president for BoozoAllen, based in Los Angeles.

No one knows exactly why they're failing, but industry analysts, business consultants and organizational development specialists are beginning, at least, to understand their nature, to avoid some of the traps and to identify the keys to an alliance's success. Some also advocate a stronger presence of human resources executives. Because most strategic alliances are initially driven by CEOs and marketing and sales executives, HR executives have been underrated and ignored in the process. But, as those involved in alliances are learning, HR professionals—such as the ones from Dresser Industries, J.B. Hunt Transport, Inc. and Lau Technologies—can contribute to an alliance's success at any stage: They can help define the two partners' culture, assess the alliance's business needs and map out a common language. In addition, HR can take responsibility for the usual compensation and benefits issues that would apply to the alliance employees.

"HR needs to get on a really rapid learning curve," says Jessica Lipnack, president of West Newton, Massachusetts-based The Networking Institute, Inc. and co-author of "The Age of the Network: Organizing Principles for the 21st Century." "They need to facilitate interaction and communication and be electronically savvy to connect people and functions at different sites."

Most strategic alliances, says Lipnack, are typically viewed as a deal. Executives often don't get down to the level of what it means as far as implementation is concerned. "The most important thing is that the purpose be clear. If the purpose is clear, then everyone involved has a role. The alliance enables you to throw an anchor into the future and pull yourself toward it," she says.

Today, many alliances are formed by larger companies that partner with smaller companies. For example, take a look at Maynard, Massachusetts-based Digital Equipment Corp. Here's a company that recently traveled a very bumpy road. It has posted more than $3 billion in losses in the last several years, has restructured and faced several top-level resignations, and has slipped in ranking behind its competitors, IBM and Hewlett-Packard. To acquire more sophisticated systems expertise, Digital entered into an alliance with Acton, Massachusetts-based Lau Technologies. A company with 200 employees, Lau Technologies was the only minority-owned company of three technology firms designated by the state of Massachusetts as a supplier of personal computers, local area networks and other systems for state-agency purchases. In 1992, it had won a $10 million contract from the Massachusetts Registry of Motor Vehicles (MRMV) to provide equipment for automating the issuance of driver's licenses. Digital provided the stand-alone system, and Lau customized it for the MRMV. By forming an alliance with Lau, Digital was able to take advantage of a state-agency contract targeted for a minority-owned company. It also gained an opportunity to improve its visibility and flash its name on the more sophisticated technology systems provided by Lau. In turn, the smaller company captured a new business opportunity outside of the waning defense industry. (About 90% of the company's revenues still come from producing electronic systems for defense contractors.) "We needed to find new avenues for sharing the burden of defense cutbacks. So we researched what other businesses we could do," says Joanna Lau, president of Lau Technologies.

Human resources, Lau says, plays an important role from a defense conversion standpoint. The skills set of many company employees have drifted from manufacturing to research and development and engineering. "Strategic alliances [spur] innovation, an entrepreneurial environment, more projects and more diverse customers," she says.

Kathleen Camire, Lau Technologies' training manager, says that human resources entered into the two companies' alliance to assist in training.

First, Digital had to train Lau employees to use its hardware equipment. That part was relatively easy. But there were several other Lau employees that had to learn how to train the motor vehicle trainers. "We had to teach 14 [MRMV] trainers how to operate the work station that we were providing for them," says Camire. It was a Windows-based application that allowed an operator to capture a digital image and print a license. The challenge, she says, was to train Lau employees who weren't used to dealing with the commercial side of business. "Before they were trained to do contract-specific tasks like soldering and inspection. Now they had to learn how to set up computers, test software and train others how to use the equipment at the customer's worksite," she says. No longer could these Lau inspectors wear blue jeans and T-shirts to work. "Now, they had to wear a suit and rethink what they were doing. Because we didn't hire people from the outside, we took people already here and trained them to think differently about the way they do business," she says.

Since the alliance, Camire says, HR has spent more time on training, curriculum development, scheduling and choosing the right employees for new tasks. About 30 new types of jobs have been created for internal employees. They encompass customer service, maintenance and installation, software engineering and testing computers. Prior to the alliance with Digital, Lau Technologies didn't even have a customer-service department, she says. "We formed it right before the alliance."

Even rivals can become strategic partners.
J.B. Hunt Transport, Inc. also made headlines years ago when it allied with railroad companies to share the freight market. It began with Schaumburg, Illinois-based Santa Fe Pacific Corporation in 1989. Today, J.B. Hunt—a $1.2 billion a year company—has at least nine hauling arrangements and 47 ramp locations with railroads covering the 48 contiguous states, Canada and access to Mexico. Intermodal transportation has become big business at J.B. Hunt and generates more than 30% of total revenues. "We've been given a lot of credit for the [increased] intermodal activity," says Palmer. In the past, the railroad industry had been tarnished by a reputation for high cargo claims, broken freight and unreliable schedules. Then railroad companies like Santa Fe began to change their image by improving their tracks and minimizing the jarring of freight. It also invested in high-speed locomotives to improve its transit time. "In the past, we all competed for the same customers," he says. "But we already had a customer base and a great reputation for service and claims." The bulk of J.B. Hunt's customers were Fortune 500 companies with plants all over the country. Santa Fe, Palmer says, had the tracks and the rail expertise. "They used us as the marketing arm to improve their service, and we saved time in delivering freight to our customers. Together, we cut costs for the customer," he says.

From a human resources standpoint, the alliance provided J.B. Hunt's HR managers with better incentives for recruiting, career pathing and retaining employees. Before the alliance, HR was troubled by the high turn-over rate among long-haul truck drivers. "We couldn't get them home as often as we'd like," says Palmer. "A lot of drivers would call me fixing to quit. They'd say, 'I need more stability for my family life.'" Long-haul truck drivers of the past would drive 2,500 miles at a time, with home stops about every two weeks. But today's driver is younger, less experienced and more antsy to get home.

With the alliance, HR at J.B. Hunt was then able to create local and regional driver jobs. "It impacted turnover dramatically," Palmer says. At first, the truckers viewed the intermodal services as a threat. Senior truck drivers usually earn up to 33 cents per mile. So when they make a 3,000-mile haul, they earn a hefty sum in addition to various performance bonuses. "They viewed [the alliance] as taking their miles away from them," says Palmer. But after HR had held several orientation and training sessions, the drivers began to see the combined freight service as a career-path opportunity. "Every time we established a rail partner, we gained another rail lane that gave us the opportunity to open up more local and regional jobs." Drivers would still have to pick up the supplier's freight, deliver it to the railhead, unload it at the end of the line and take it to the final destination. In other words, more frequent short shops, rather than one long one. "If we could get them the same compensation and home every night, or two to three times a week, that was a big plus."

Parent partners often give birth to new entities.
Strategic alliances have often been compared to the dynamics of marriage and the family. Harbison, of BoozoAllen & Hamilton, even describes some of the more common sense traps by using these analogies:

  • Picking the wrong spouse: Failing to take the time to select the right partner
  • Being vague with the prenuptials: Failing to explicitly agree on objectives and goals
  • Being a possessive child: Focusing on one's slice and who controls the baker
  • Seeing through the eyes of a juvenile: Not developing much-needed trust
  • Causing the generation gap: Relying on inadequate or erratic communications
  • Living with the in-laws: Not solving the protective-parent syndrome.

Harbison also warns that partners should not be in a hurry to consummate an alliance as in a shotgun wedding. It usually takes about a year to put an alliance together. Armed with an understanding of the motivations for an alliance, it's tempting for companies "to plunge ahead without understanding the perils in the path ahead," he says. "It's dangerous when the selection of a partner drives strategy rather than vice versa," he says.

Ask Paul Bryant, vice president of human resources for Dallas-based Dresser Industries, Inc. He participated in his company's alliance with Woodcliff Lake, New Jersey-based Ingersoll-Rand Company in the mid-1980s. Both were American companies, and both competed worldwide for products. Dresser is known for being a leading international supplier of products and services for the oil and gas industry. It offers everything from drill bits to gas pumps to pipe-coating services. Ingersoll-Rand, on the other hand, is a manufacturer of non-electrical industrial machinery and is one of the world's largest makers of air compression systems, anti-friction bearings, construction equipment and air tools.

The seeds of the alliance were planted by the two companies' CEOs. Both had known each other through various industry associations. Because of the downturn in the energy market worldwide, both companies ended up with a surplus of products. "Both sides quickly went from being highly profitable to highly unprofitable. By combining [some facilities], we could put more resources into development and return to profitability as soon as possible," says Bryant, who participated in the planning stages. As alliances evolve, partners often can assume different roles. Some might simply lend a name. Others might invest money, provide expertise or just roll up their sleeves and lend a hand. But regardless of the role, both partners must be committed to the alliance's success. In the case of Dresser and Ingersoll-Rand, the alliance would give birth to a new entity.

The parent companies had to first agree on their strategic goals: To restructure in a way that would reduce the capacity and improve a new product line for their global customers. With the Dresser and Ingersoll-Rand alliance, HR played a pivotal role in the beginning by helping select the remaining sites that would evolve into the new entity known as Dresser-Rand company. The new entity, based in Corning, New York, was slated to manufacture compressors and gas turbines.

"Our philosophy was that the new company had to stand on its own. We decided there would be little interference from the parent companies," he says. Instead, the parent companies would serve as consultants.

Under Bryant's leadership, the then-combined work force of 9,000 [today there are 7,500] would have to be selected. HR had to determine the criteria with which to evaluate them and also establish a smooth transition for their transfer. Because the new headquarters for Dresser-Rand was in a small community, HR made arrangements for temporary housing. Some employees were offered accommodations in local motels within a 15- to 20-mile radius of Corning. The alliance also required that HR design a new set of rules and benefits program. "We had to use grandfathering techniques to look back at each employee's history, pension formula and service credit with the parent company." In other words, the Dresser-Rand alliance was different from an acquisition because a third entity was formed immediately as part of the alliance arrangement.

Bryant says that one of the most difficult aspects of any alliance is reconciling two operating cultures. Dresser Industries and Ingersoll-Rand were similar in some ways: Both had a long-service type of culture in which the average employee tenure was about 14 years. Both also came from engineering backgrounds. But the work styles were very different. One was from the East Coast; the other was based in the Southwest. Those regional differences impacted whether employees were more used to a formal or casual way of working, he says. HR facilitated both groups' mingling by arranging special dinners and van pools to the local facilities. "Even though the purpose of the trips was to become familiar with our operations, you get to know each other better after spending two hours in the same [vehicle]," he says.

After serving six years as Dresser-Rand's HR manager, Bryant was promoted in 1993 to his current position as vice president of HR for Dresser Industries. Today, he says, Dresser-Rand is more focused on team building and TQM initiatives that he led before his departure. In addition to the HR department, which includes a staff of 12 professionals, Dresser-Rand also established a quality department run by one vice president and one assistant. "We believe in quality so much that we wanted it to be on equal footing with the other departments," says Bryant, who recommended that Dresser-Rand purchase and implement Corning Incorporated's successful total quality program. "Total quality gave us the framework and initiative to harness our employees. People led teams for the first time and blossomed," he says. Dresser-Rand's alliance has been so successful, that in 1992 the two companies also combined their pump businesses and formed Ingersoll-Dresser Pump after gaining approval from the U.S. Justice Department. Today, IDP is a mammoth global enterprise, with reported sales nearing $900 million, factories around the world and 7,000 employees. By forming that alliance, the two companies were again able to shrink capacity, combine technology and become more cost competitive. In other words, the businesses brought complementary technologies and marketing strengths to the table.

"Strategic alliances are usually set up for one reason. But it often creates so many other possibilities," says Lipnack. Adds Peta Penson, principal of Saratoga, California-based Co-Development International, Inc.: "All of these alliances mean new ways of working together. The most important stakeholders often lie outside one's traditional boundaries. People have reached out to other suppliers and vendors."

Upstart companies team up with global resources.
For William Koch, co-owner of Ontario, California-based Rexor Corp., forming a strategic alliance meant partnering with a Korean-American chemist with ties to Korea. Together, they formed Rexor, a small company with five employees that primarily has been a technology research and development firm. Now, the company is proceeding to commercialize by growing single silicon crystals called boules, which are sliced into wafers and used to form computer chips. The technology, Koch explains, is one in which Americans have virtually no knowledge. "The people who had been working in this [field] aren't in the United States." Koch's company was exploring a way to grow the crystals in a cheaper and more efficient manner. "Technology is so expensive and so large that it requires more than one single-source provider. In our case, we grow this crystal, which is just one of many steps to get the computer chip to the market place. It requires a high degree of competency," says Koch, whose background is in engineering organizational development.

When Rexor purchased a $500,000 machine to enable the process, the equipment manufacturing representative who came to install the machine had also installed one in India. Koch asked him to recommend someone who might have the required technical expertise. The representative gave him the name of an Indian professional who had been studying the crystal-growing method. Koch flew to India and negotiated to have the Indian join the Rexor staff. That was three years ago. Today, Rexor also is engaged in a strategic alliance with an Indian company that takes the manufactured crystal and converts them into solar cells, then sends them to Korea where they're mounted onto boards and are prepared for worldwide export. "We're getting a price enhancement on our materials by paying a strategic alliance partner a fee in India to do what they want to do—[make solar cells]. Then we pay another enhancement fee in Korea to put them into modules."

The Korea connection was strengthened through the Korean-American co-owners' ties to his native homeland. But even with that cultural advantage and insight, Koch quickly learned that conducting global transactions between two different cultures can still get sticky. "[Americans] have a tendency to do business as a contractual arrangement. Koreans are different. They rely more on verbal agreements. Contracts, dates, checkoffs don't fit well with them. They view it as questioning their integrity. So you never know until the day a project is done, if it's done."

HR can contribute to an alliance's success.
As with any marriage, there's no guarantee that strategic alliance partners will "live happily ever after." James Finnegan, director for Cambridge, Massachusetts-based Arthur D. Little, Inc., a management and technology consulting firm, believes the failures boil down to two factors: "After some period of time, either the alliance hasn't achieved its objectives, or it's met the objectives, but one of the two partners has changed its mission." To ensure the best scenario, Finnegan believes HR should participate during the early stages of an alliance. As soon as two or more companies reach a consensus that an alliance is necessary, HR should help define the different cultures and objectives of the marriage. Even if an HR professional hasn't participated in one before, some consultants advise that HR aggressively seek the opportunity. HR has often been responsible for its own lack of involvement, says Susan Studd, an organizational development consultant at Intel in Hillsboro, Oregon. What HR needs to do is apply its people skills to the overall business needs of the alliance. "Talk to a senior manager who's participated in one and ask, 'Could you help me understand what worked well and what didn't?' Then, if you hear of a strategic alliance being considered by your company, jump in and ask, 'What can I do to make it more effective?'" advises Studd. "HR's reputation and credibility [in strategic alliances] is still being established. Hopefully, it'll grow over time."

Personnel Journal, May 1995, Vol. 74, No. 5, pp. 28-36.

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